<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 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 1-10196
DIMENSIONAL VISIONS GROUP, LTD.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 23-2517953
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8855 N. Black Canyon Hwy., Suite 2000 85021
Phoenix, Arizona (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (602) 997-1990
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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 periods 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained herein,
to the best of registrant'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. Yes No X
--- ---
For the fiscal year ended June 30, 1996, the Company's revenues were
$1,083,897.
As of September,30, 1996, the number of shares of Common Stock outstanding
was 30,463,013. The aggregate market value of the Company's Common Stock held by
non-affiliates of the registrant as of September 30, 1996, was approximately
$5,081,988 (based upon 26,747,303 shares at $.19 per share).
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Certain exhibits are incorporated by reference to the Company's Registration
Statements on Form S-1 and Form S-8, Form 10-KSB and Form 8-K as listed in
response to Item 13(a)(3) of Part III.
(2)
<PAGE>
PART I
ITEM 1. BUSINESS
The Company
Dimensional Visions Group, Ltd. ("DVG") was organized in 1988. DVG produces
and markets lithographically printed stereoscopic prints commonly referred to as
three-dimensional prints as well as lithographically printed animation which the
Company has termed Animotion(TM). The stereoscopic prints may be viewed without
the use of special glasses or other viewing apparatus. DVG has been issued a
trademark for its three-dimensional products as the DV3D(R) image and has
applied for a trademark for the Animotion(TM) name. The DV3D(R) and
Animotion(TM) product lines are determined by the technical specifications of
the polymer based lenticular material on which the image is printed. The print
products may be produced in varying sizes for specified customer applications.
The current DV3D(R) print product is designed for hand-held viewing.
On September 12, 1995, DVG, through a wholly-owned subsidiary, acquired all
the outstanding capital stock of InfoPak, Inc. ("InfoPak"). InfoPak, located in
Phoenix, Arizona, manufactures and markets hardware and software information and
audio playback systems and method products and programs. References herein to
the "Company" includes DVG and its wholly-owned subsidiaries.
InfoPak was founded in 1992. InfoPak has developed a system that allows
those that use large and cumbersome printed dated material an electronic
alternative which is easier to use. The InfoPak Information System (the
"System") was designed to manage voluminous databases that change often and to
distribute information to remote locations where the System utilizes standard
telephone lines and personal computers to distribute the information.
Information is stored on an InfoCard(TM) and displayed by a hand-held
InfoReader(TM). The System has been designed to provide the owners and
publishers of the information many levels of security to ensure that piracy and
unauthorized use does not occur. In essence, InfoPak distributes data
electronically then repackages directories onto InfoCards(TM) to be used in
InfoReaders(TM). In many cases, InfoPak provides key business information to the
end user in just a few seconds when, historically, that process took days or
even weeks.
All of InfoPak's programming and hardware design is accomplished by the
Company while its hardware, including both the InfoReader(TM) and InfoCard(TM),
are manufactured via turnkey agreements and strategic alliances by outside
vendors. InfoPak currently produces and markets the System to the residential
real estate agent marketplace as the InfoPak Portable MLS and to the automotive
industry as an electronic automotive pricing guidebook which has been named
AutoPak(TM). The Portable MLS application is sold to realtors as an option to
the printed Multiple Listing Service Directory and the automotive application is
sold to auto dealers, auto brokers and banks as an electronic alternative to the
printed Kelley Blue Book automotive pricing guide. The InfoCard(TM) stores the
data and the operating program for each of these respective applications for
portable access via the InfoReader(TM).
The Company has been dependent upon the proceeds of the sale of its
securities, loans, and revenues from operations which include proceeds from the
sale of DV3D(R) print products, InfoReader's and monthly licensing revenue for
InfoPak Systems, to conduct its business. There can be no assurance that the
Company will generate sufficient revenues from the sale of its products and
services necessary to maintain its cost structure or achieve profitability.
(3)
<PAGE>
Marketing
DVG is marketing commercial and promotional applications of its DV3D(R)
print products to all users of graphic arts. Some of the applications of DV3D(R)
print products are packaging, book and magazine covers and inserts, CD covers,
trading cards, games, and greeting cards. Other proposed markets include
point-of-sale materials and displays, direct mail, specialty advertising,
premium incentives, trade show exhibits, and special events promotion.
DVG uses its own employees and independent sales agents in marketing its
products. The independent sales agents are paid on a commission basis for orders
shipped, accepted and for which payment has been received. DVG also sells its
products to independent marketing organizations. During fiscal year 1995, DVG
entered into exclusive sales and marketing agreements with independent sales and
marketing organizations. During the last fiscal year, the Company sold
principally through one sales and marketing organization and is now selling to a
variety of customers through its own internal sales and marketing organization
as well as a number of independent sales organizations. DVG, during the first
quarter of fiscal 1997, shipped 50,000 three dimensional images to a major
credit card service company and currently has other purchase orders including an
order for 50,000 Animotion(TM) images with a large toy distributor which the
Company believes will ultimately be expanded to a 520,000 image order as well as
an agreement in principal for 1,000,000 images for a series of NHL and NBA
DV3D(R) images.
To date, InfoPak has grown its business primarily through the use of outside
distributors. The objective has been to develop a wide-spread distribution
network in order to establish broad based customer acceptance in real estate as
well as other markets. Using this method of marketing, operations have been
established in over sixty cities in the United States and Canada for the MLS
product. Expansion has been steady and is expected to continue during the
foreseeable future.
Presently, each distributor under contract with InfoPak receives a specific
marketing territory that may cover anywhere from one city to many cities.
Territories are granted based upon the distributor's financial strength, real
estate industry experience, performance goals, and initial purchase commitments.
The distributor maintains rights to operate in its assigned territory as long as
it meets the performance benchmarks outlined in its distribution agreement with
InfoPak. Although these benchmarks vary from one distributor to another, they
normally encompass inventory purchase requirements which is one of InfoPak's
sources of revenue.
InfoPak's current revenues are primarily generated in two ways: 1) through
the sale of new Portable MLS InfoReaders(TM) to the distributor and 2) through
ongoing licensing revenue collected from the distributor for each InfoPak
Portable MLS InfoReader(TM) in operation. The licensing fee is assessed for
ongoing MLS data delivery, system support, and system maintenance, and normally
begins the thirteenth month following activation of an InfoReader(TM).
Distributors, in turn, either lease or sell the InfoReaders(TM) to the end
customer (normally realtors), collecting monthly licensing fees for ongoing
support in all cases. A portion ($6.00 to $8.33) of that fee, per month per
InfoReader(TM) in use, is monthly revenue to InfoPak. Beginning in January of
1997, InfoPak will begin collecting monthly licensing revenue on the majority of
InfoPak's existing customer base who currently use the Portable MLS. Expansion
of the customer base for the Portable MLS has been steady and is expected to
continue to grow during the foreseeable future as a result of an expanding and
more decentralized distributor base that are highly motivated and customer
service oriented.
InfoPak recently successfully completed a market test of its electronic
automotive pricing guidebook, referred to as the AutoPak(TM), which was
conducted in conjunction with Kelley Blue Book. Based on the successful
completion of the test, InfoPak expects shortly to conclude a national agreement
with Kelley Blue Book allowing for expansion from the Phoenix Arizona
Metropolitan Area, where the initial test was conducted, to the majority of the
Kelley Blue Book market areas. Inasmuch as the AutoPak(TM) product
(4)
<PAGE>
uses the same InfoReader(TM) hardware as the Portable MLS, InfoPak will generate
additional revenue from hardware sales as well as ongoing fees assessed per
bi-monthly update of Kelley Blue Book data. Additionally, InfoPak is currently
working to further expand the AutoPak(TM) product to include other major
suppliers of automotive pricing data, over the next six to twelve months.
Production
DVG controls or supervises all phases of the production of the Company's
DV3D(R) print products from the stereoscopic and/or animation photography and
proprietary image compositing through the color separation and printing.
There are four basic phases of the manufacturing process, the multiple image
stereoscopic and/or animation photography, the multiple image compositing of the
DV3D(R) image to create a master transparency, the color separation of the
master transparency and the printing of the separated image on polymer based
lenticular material. Lenticular material is a plastic optical material that
allows the three-dimensional and/or animation image to be viewed without the use
of any viewing apparatus such as glasses, hoods, etc. The process involves, in
part, the taking and then compositing of numerous photographs of a subject in
order to create a single stereoscopic and/or animation master image. The
technology involves a computer controlled camera mounted on a micropositioning
mechanism and imaging system taking numerous photographs of a subject. The
camera is mobile and takes photographs from various positions and angles. The
photos are then composited in a clean room/photo laboratory to create a single
stereoscopic and/or animation master transparency. The present stereoscopic
photographic system used by the Company can only produce an image of stationary
objects. The DV3D(R) image is then sent to a commercial separator and printer
where the master image, with the use of the Company's proprietary methods and
knowledge, is separated and, through the lithographic process, printed on a
polymer based lenticular material which focuses the multi-dimensional images.
The Company produces the multi-image, stereoscopic and/or animation photography
and compositing of the DV3D(R) image for the master transparency at its
facilities in Philadelphia, Pennsylvania. Proprietary color separation and
printing are done under the supervision of the Company with third-party vendors.
The polymer based lenticular material on which the DV3D(R) image is printed
is supplied by producers in the petrochemical and plastic fabricating
industries. The DV3D(R) image is printed on the polymer based lenticular
material by commercial lithographic printing processes. In the printer's
pre-press preparation stage, state-of-the-art computerized photo equipment is
necessary because production specifications for the DV3D(R) image require
ultraaccurate tolerances. The Company has established working arrangements with
third-party separators and a printer on a per order basis.
InfoPak's products are manufactured by a third party pursuant to a Turnkey
Agreement with Elamex, S.A. de C.V. The Turnkey Agreement provides for the
manufacture of the portable InfoReader(TM) products whereby creditworthy
purchase orders are placed directly through InfoPak with Elamex. Receivables are
assigned to a lockbox and upon receipt are distributed in accordance with the
costs of goods as agreed upon between InfoPak and Elamex.
Patents, Trademarks and Proprietary Protection
In November 1988 concurrent with the initial public offering of its
securities, the Company was assigned the rights to a patent, "Method and
Apparatus For Stereoscopic Photography." However, because applications were not
filed on a timely basis in other countries, except Canada, prior to the patent
being issued and before the Company's acquisition of the patent rights, patent
applications cannot be filed in any other country. The patent covers a method
and apparatus for taking three-dimensional pictures of an object in which a
plurality of cameras are used, or a single camera is operated sequentially, on a
side by
(5)
<PAGE>
side basis to take a plurality of separate pictures of the same object. In
September of 1990, the Company was issued an additional patent, Electronic
(digitalized) Method and Apparatus For Stereoscopic Photography", which can be
used on the Company's photographic process.
In February 1993, certain officers of InfoPak sold and assigned technology
as set forth in a patent application "System and Method for Providing Data and
Program Code to a Card for Use by a Reader" to InfoPak. In August 1993, certain
officers of InfoPak sold and assigned certain technology as set forth in a
patent application "System and Method for Credit Card Verification System" to
InfoPak. In September 1996, certain officers of InfoPak assigned certain
technology as set forth in both of the following patent applications "Audio
System for a Toy" and "Audio and Visual Collector Card System" to InfoPak.
InfoPak also has a patent application "Electronic Telephone Directory with
Interchangeable Listings". All patent applications are pending before the United
States Patent and Trademark office. The Company enters into confidentiality
agreements with all persons and entities who or which may have access to its
technology. However, no assurance can be given that such agreements, the patents
or any additional patents which may be issued to the Company will prevent third
parties from developing similar or competitive technology. There can be no
assurance that the patents will provide the Company with any significant
competitive advantages, or that challenges will not be instituted against the
validity or enforceability of its patents, or if instituted that any such
challenges will not be successful. The cost of litigation to uphold the validity
and prevent infringement can be substantial. In addition, no assurance can be
given that the Company will have sufficient resources to either institute or
defend any action, suit or other proceeding by or against the Company with
respect to any claimed infringement of patent or other proprietary rights. In
the event that the Company should lose, in the near future, the protection
afforded by the patents and any future patents, such event could have a material
adverse effect on the Company's operations. Furthermore, there can be no
assurance that the Company's technologies will not infringe patents or other
rights owned by others, licenses to which may not be available to the Company.
The Company has registered the DV3D(R) trademark and has recently applied to
register the Animotion(TM) mark with the United States Patent and Trademark
office.
Competition
Other processes currently are available which allow a viewer to perceive an
image in three-dimension, including those which employ stereoglasses and viewing
hoods and other processes, such as holograms and other three-dimensional image
systems, which do not require the use of viewing apparatus. The Company is aware
of at least three companies which manufacture equipment capable of producing
traditional three-dimensional images for commercial or consumer use, all of
which have substantially greater financial and other resources than the Company.
Various systems exist for taking traditional three-dimensional photographs,
including a system providing for the taking of two pictures from different
angles using filters, requiring glasses for viewing and the use of a plurality
of cameras spaced side by side or in an arc around the subject. Holographic and
other stereoscopic techniques, when perfected, may result in three-dimensional
images which will be directly competitive with the Company's products. Further,
the Company's products are substantially more expensive than conventional, high
quality, two-dimensional prints and for this reason, high quality, conventional
processes and methods may be favored for many, if not most, illustration and
advertising contexts. Certain of the Company's competitors, who may have
substantially greater financial and organizational resources than the Company
have developed three--dimensional processes, such as Optigraphics, Inc., and
National Graphics, which compete with the Company's products.
Management of InfoPak believe that no other product competes directly with
the InfoPak Portable MLS or the AutoPak(TM) because of the single application
function and low cost provided to its subscribers. However, many companies with
far greater resources than InfoPak offer palm-top and lap-top computers
(6)
<PAGE>
for use with Multiple Listing Service Systems. No assurance can be given that
such other companies may not redesign their products specifically for the real
estate niche market that InfoPak sells its Portable MLS.
Employees
The Company has 14 employees. DVG employs 5 persons, 1 of whom is an
executive officer. InfoPak employs 9 persons, 8 of whom work full time, and 1 of
whom is an executive officer.
(7)
<PAGE>
Consolidated Selected Financial Data
Set forth below is selected financial data derived from the Company's
consolidated financial statements, some of which appear elsewhere in this
report. This data should be read in conjunction with the consolidated financial
statements, some of which are included elsewhere in this report.
<TABLE>
<CAPTION>
==========================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operation revenue $1,083,897 $134,028 $ -0- $ -0- $ 166,385
- --------------------------------------------------------------------------------------------------------------------------
Net Loss ($2,035,647) ($1,192,332) ($1,069,642) ($1,327,258) ($4,033,997)
- --------------------------------------------------------------------------------------------------------------------------
Net Loss per share of
common stock ($.12) ($.07) ($.07) ($.10) ($.39)
- --------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
- --------------------------------------------------------------------------------------------------------------------------
Working Capital (deficit) $9,528 ($138,013) ($85,149) ($305,014) ($297,463)
- --------------------------------------------------------------------------------------------------------------------------
Total Assets $1,408,919 $451,237 $449,725 $636,133 $2,870,149
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities $673,058 $2,502,230 $1,464,861 $692,027 $2,273,631
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
(deficiency) $735,861 ($2,050,993) ($1,015.136) ($55,894) $596,518
==========================================================================================================================
</TABLE>
ITEM 2. DESCRIPTION OF PROPERTY
DVG leases approximately 5,485 rentable square feet, for its marketing and
technical operations in Philadelphia, PA. The term of the lease, which has early
termination provisions, is five years, expiring on February 28, 1999. The
annual fixed rent of $23,595 for the first year, $58,963 in year two, $60,335
in year three, $61,706 in year four and $63,077 in the fifth year.
InfoPak rents approximately 1,800 square feet of office space in Phoenix,
Arizona. The monthly rent is $1,227 on a month to month basis which includes
electricity.
The Company is planning to consolidate the Philadelphia and Phoenix offices,
in Phoenix, which will necessitate larger quarters in Phoenix. The consolidation
will, however, reduce the overall rent and related expenses currently being paid
by the Company.
ITEM 3. LEGAL PROCEEDINGS. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
fiscal quarter of 1996.
(8)
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal market for the Company's Common Stock is the National
Association of Securities Dealers, Inc. over-the-counter market, on the
Electronic Bulletin Board. The trading symbol for the Common Stock is "DVGL.U".
Set forth below are the high and low bid prices for the Company's Common Stock
by the Company's fiscal quarters beginning July 1, 1995 as quoted by the
National Quotation Bureau. The prices represent prices between dealers, do not
include retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
Fiscal 1995 High Low
----------- ----- ----
First Quarter $ .41 $ .19
Second Quarter $ .47 $ .22
Third Quarter $ .44 $ .19
Fourth Quarter $ .75 $ .19
Fiscal 1996
-----------
First Quarter $2.76 $ .75
Second Quarter $1.87 $ .50
Third Quarter $1.00 $ .32
Fourth Quarter $ .75 $ .20
Fiscal 1997
-----------
First Quarter $ .32 $ .11
Holders
As of September 30, 1996, the number of stockholders of record was 384, not
including beneficial owners whose shares are held by banks, brokers and other
nominees. The Company estimates that it has approximately 4000 stockholders in
total.
Dividends
The company has paid no dividends since its inception and does not
anticipate or contemplate paying cash dividends in the foreseeable future.
Pursuant to the terms of the Company's Series A Convertible Preferred Stock,
a 5% annual dividend is due and owing. Pursuant to the terms of the Company's
Series B Convertible Preferred Stock, a 8% annual dividend is due and owing. As
of June 30, 1996, the Company has not declared dividends on preferred stock. The
unpaid cumulative dividends totaled approximately $245,800. See Note 10 of Notes
to Consolidated Financial Statements.
(9)
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Fiscal Years 1994 and 1995
Liquidity and Capital Resources
As of June 30, 1995, the Company had a working capital deficiency of
$138,013, compared with a working capital deficiency of $85,149 in 1994. During
the period ended June 30, 1995, the Company raised $757,000 through the sale of
its promissory notes in private placements and approximately $39,000 through the
exercise of warrants. The Company's selling and marketing efforts had been
limited until adequate funding was obtained. During the period the Company was
taking selected orders based upon availability of inventory used in the
production process.
On April 25, 1995, substantially all of the long term note holders agreed to
defer all interest payments on the notes until the notes mature beginning in
fiscal year 1997, or upon the consummation of long term financing and/or
strategic partner relationship, to convert the notes and accrued interest into
8% Series B Convertible Preferred stock through the exercise of the Series B
Redeemable Warrants.
Results of Operation
During the fiscal year ended June 30, 1995, the Company began limited
production. The net loss for the period was $1,192,332 compared with a net loss
of $1,069,642 for the fiscal year ended June 30, 1994. For the period the
Company paid consulting fees and expenses of approximately $235,000 which were
not related to research and development and consulting fees of approximately
$137,720 relating to research and development. Salaries totaled approximately
$243,000 during the period. Other expenses during the period included outside
production costs consisting of plastic, printing and separating of approximately
$117,000, travel and related expenses of approximately $62,000 and approximately
$72,000 for office rent and utilities expenses. Professional fees for the period
were approximately $46,000. Interest expense for the period totaled
approximately $208,700 which includes $141,200 of accrued interest and $67,500
of additional interest relating to the issuance of warrants.
Revenues for the period were approximately $135,000. Operational funding
needed to fully commence operations, i.e., purchase additional inventory and
equipments offer a variety of DV3D(TM) products, hire additional personnel and
maintain good working relationships with third party vendors was not obtained
until after the period.
The Company's independent auditors report contains an explanatory paragraph
regarding the ability of the Company to continue as a going concern.
Fiscal Years 1995 and 1996
Liquidity and Capital Resources
As of June 30, 1996, the Company had working capital of $9,528 compared with
a working capital deficiency of ($138,013) as of June 30, 1995. During the
period ended June 30, 1996, the Company raised a total of $1,425,000 through
the sale of its equity securities and debt in various offshore transactions and
a private placement. Holders of such debt financing representing $425,000
converted their debt into shares of Common Stock during the period. Also during
the period ended June 30, 1996, holders of $1,907,000 in principal amount of
secured notes converted such notes into 190,700 shares of the Company's 8%
Series B
(10)
<PAGE>
Convertible Preferred Stock. Interest on such secured notes totaling $262,750
was converted into 26,275 shares of the Company's Series C Convertible Preferred
Stock.
The Company expects to receive approximately $250,000 to $300,000 during
fiscal year 1997 from monthly licensing fees for the InfoPak Portable MLS
product. As of September 30, 1996, InfoPak has billed $42,962 of this amount and
will continue to invoice its distributors on a monthly basis. The majority of
the fees will begin in January 1997 pursuant to existing distribution
agreements. The actual amount of such fees will be determined by the number of
MLS InfoReaders in service during the year.
As of June 30, 1996, the Company's financial position was precarious. The
Company needed additional funding in order to maintain current operations and
extend its product lines. The Company is still not to the point of generating
sufficient revenues from operations to cover its cost structure. The Company has
been funding its operations by selling its securities in private placements,
offshore transactions, short-term borrowing, accruing compensation to certain
employees, and sale of its products. The Company continues to discuss with
outside shareholders and other third parties the raising of additional funds.
The amount of third party funding, depends to some extent on the Company's
revenues and cash flow from operations. Since June 30, 1996, the Company has
raised $619,000 through private placement of its securities. No assurance can be
given that the Company will be able to obtain additional funds in the long term
necessary to maintain its existing operations. In the event the Company is not
able to secure sufficient funds in a timely basis necessary to maintain its
current operations, it may cease all or part of its existing operations.
The Company's independent auditors report contains an explanatory paragraph
regarding the ability of the Company to continue as a going concern.
Results of Operations
The net loss for the period ending June 30, 1996 was $2,035,647 compared
with a net loss of $1,192,332 for the period ended June 30, 1995. The increase
in the loss was caused primarily by an increase in compensation expenses such as
consulting fees, professional fees and salaries. The Company also incurred a bad
debt expense of $213,522 as explained below. The Company's cost of producing its
DV3D(R) print products continued to be high during the period resulting in
marginal gross profits for this product. Subsequently, the Company, through
arrangements with new suppliers and negotiations with existing suppliers, has
been able to substantially reduce the cost of producing its DV3D(R) print
products with a resultant increase in its gross operating margins.
Revenues for the period ended June 30, 1996 were $1,083,897 compared to revenues
of approximately $134,028 for the fiscal year ended June 30, 1995. The increase
in revenues was the result of the Company commencing operations for its DV3D(R)
print products and the Company's acquisition of InfoPak in September 1995.
Revenues for InfoPak for the period were $522,837. Approximately 81% of such
revenues were derived from two customers, one of which accounted for
approximately 64%. During the period InfoPak encountered difficulties with its
distribution program which resulted in much lower sales than projected which has
since been resolved by changing the distributor base.
During the period ended June 30, 1996, the Company's DV3D(R) print products
were sold principally through one independent sales and marketing organization.
In April 1996, the Company delivered an order to such organization but has not
received any payment for it. The Company has filed a lawsuit to seek payment for
the order. The amount of the order was $213,522. While the Company believes that
the merits of the lawsuit are very good it has taken a bad debt allowance for
the amount of the order because of its concerns about the collectibility of any
reward. The Company has ceased doing business with this organization and has
increased its own internal marketing organization as well as broadened its base
of outside sales and marketing representatives.
(11)
<PAGE>
The Company expects to incur operating losses through the quarter ending
December 31, 1996. However, the Company has implemented a program for reducing
its operating expenses and controlling its internal costs. The Company has
consolidated its corporate offices in Phoenix, Arizona, and anticipates that the
production facilities will also be consolidated in Phoenix by the end of the
second fiscal quarter. It has placed its various engineering functions under a
single engineering officer and its administrative and operations functions under
a single administrative officer. The Company has also decreased its use in
consultants and sought to lower its professional fees and other non-operating
expenses. The Company continues to reduce its outside production costs for its
DV3D(R) print products. The Company has introduced two new products, the
Animotion(TM) print product and the AutoPak(TM) electronic automotive pricing
guidebook product. The Company continues to rely on third party vendors for the
production of its products and any disruption could have a material adverse
effect on the Company's operations.
Events Subsequent to June 30, 1996
The Company sold, through a private placement, 1,190,000 shares of the
Company's common stock (restricted shares) during August and September for
$119,000 ($.10 per share).
During September and October, 1996, the Company received $500,000 from the
sale of its securities, $350,000 from the sale of common stock at $.14 per share
and $150,000 from the sale of a convertible debenture with a maximum conversion
price of $.15 per share.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements required to be filed pursuant to this
Item 7 begins on page F-1 of this report. Such consolidated financial statements
are hereby incorporated by reference into this Item 7.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. Non applicable.
(12)
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George S. Smith (1) 62 Director, Chairman of the Board of Directors,
President and Chief Executive Officer and Chief
Financial Officer
Sean F. Lee (1) 56 Director, Chief Operating Officer and Executive Vice
President of Dimensional Visions Group, Ltd., and
President of InfoPak, Inc.
Steven L. Flint, Ph.D. (2)(3)(4) 46 Director
Hans J. Kaemmlein (2)(3)(4) 51 Director
Robert A. Smith 52 Director
Thomas A. Cadez (4) 31 Director
</TABLE>
- --------------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating Committee
Mr. George S. Smith was appointed Chairman of the Board in April 1992. From
April 1992 until September 12, 1995, Mr. Smith served as the Chief Executive
Officer of DVG. Mr Smith was reappointed Chief Executive Officer in June 1996.
From 1980 to 1988, Mr. Smith was a Senior Vice-President at Drexel Burnham
Lambert. From 1988 to 1990 he was a senior Vice President at Shearson Leahman
Brothers. From September 1990 until April 1992, Mr. Smith was on sabbatical for
corrective back surgery. Mr. Smith is an honors graduate in economics with a
minor in engineering from San Jose State University.
Mr. Lee was appointed a Director in September 1995. Mr. Lee has served as
InfoPak's President since January 1992. In April 1994, Mr. Lee co-founded and
became Chairman of the Board of Directors of Auto X-ray, Inc., a privately held
company (diagnostic system for American automobiles). From September 1988 until
December 1991, Mr. Lee served as a director, Chief Executive officer and
President of Builder's Express, a publicly held company based in San Antonio,
Texas which filed for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code in
1991.
Dr. Flint was appointed as a Director in June 1996. Dr. Flint is a Senior
Vice President, Chief Financial Officer and member of the Board of Directors of
The Alexander Group, Inc., a national marketing and sales consulting firm whose
clients are typically Fortune 1000 companies. Dr. Flint has been employed with
The Alexander Group, Inc. since 1991. Additionally, Dr. Flint holds a Ph.D. in
finance from the graduate school
(13)
<PAGE>
of business at Stanford University, has previously held the position of Chief
Financial Officer and Board member of a high tech firm and has been a professor
of finance. Dr. Flint is currently engaged in a number of volunteer and service
organizations including sitting on the Board of The Arizona Shakespeare
Festival.
Mr. Kaemmlein was appointed as a Director in June of 1996. Mr. Kaemmlein is
the Chairman, President and Chief Executive Officer of Advanced Media which
specializes in the development and marketing of interactive multimedia solutions
and technologies. Mr. Kaemmlein has held these positions since 1993. Previously,
Mr. Kaemmlein spent over 25 years as an executive with Mercedes Benz and more
recently has served as a management consultant and venture capitalist for
several start-up and public companies. Mr. Kaemmlein completed his business
management education in Europe.
Mr. Robert A. Smith was appointed as a Director in July of 1996. Mr. Smith
was formerly the President and Chief Executive Officer of CareerCom Corporation
where he served in executive positions over a ten year period of time from 1982
to 1992. From 1992 to present Mr. Smith has been a private investor and owner of
a private educational institution. He is a graduate of the University of Georgia
with a degree in business Administration and Economics.
Mr. Cadez was appointed as a Director in July of 1996. Mr. Cadez is the
President and Chief Executive Officer of Spectrum Media, Inc., which is a media
planning and strategic marketing firm that provides services to national retail
advertisers and is based in Long Beach, California with offices in San Francisco
and Dallas. Mr. Cadez has served as President and Chief Executive Officer of
Spectrum Media since 1991 with several years of prior executive marketing and
management experience with Media Marketing Network and Celestial Products.
Directors serve until the next annual meeting or until their successors are
qualified and elected. Officers serve at the discretion of the Board of
Directors.
Directors are not paid a fee for their services but are reimbursed for their
reasonable expenses for attending meetings of the Board and its committees. Each
outside Director is eligible to receive a total of 100,000 common stock purchase
warrants. The Warrants vest at the rate of 25,000 warrants per quarter and
expire three (3) years after the date of grant. The exercise price is $.31 per
warrant.
The Delaware General Corporation Law permits a corporation through its
Certificate of Incorporation to eliminate or limit its directors' personal
liability to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as directors with certain exceptions. The exceptions include a
breach of the director's duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law, improper
declarations of dividend, and transactions from which the directors derived an
improper personal benefit. The Company's Certificate of Incorporation limits its
directors' liability to the extent permitted by this statutory provision. The
limitation of liability provision does not eliminate a stockholder's right to
seek non-monetary, equitable remedies such as injunction or rescission to
redress an action taken by directors. However, as a practical matter, equitable
remedies may not be available in all situations and there may be instances in
which no effective remedy is available.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors and certain officers of the Company, as well as persons who own more
than 10% of a registered class of the Company's equity securities ("Reporting
Persons") to file reports of ownership and changes in ownership of Forms 3, 4
and 5 with the Securities and Exchange Commission. The Company believes that all
Reporting Persons have complied on a timely basis with all filing requirements
applicable to them.
(14)
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total compensation earned by or paid to
the named executive officers by the Company for the fiscal year ended June 30,
1996.
<TABLE>
<CAPTION>
============================================================================================================================
LONG TERM COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION Awards Payouts
- ----------------------------------------------------------------------------------------------------------------------------
Securities
Other Annual Restricted Underlying LTIP All Other
Compensation Stock Awards Options/SARs Payouts Compensa-
Year Salary ($) Bonus ($) ($) ($) (#) ($) tion ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven M. Peck 1996 $93,885 $0 $0 $0 1,000,000 $0 $0
(Former CEO)
George S. Smith(1) 1996 $19,200 $0 $0 $0 -- $0 $0
CEO
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================================================
OPTIONS/SAR GRANTS IN THE FISCAL YEAR 1996
- --------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Option/SARs Employees in Exercise or Base Expiration
Name Year Granted (#) Fiscal Year Price ($/Share) Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Steven M. Peck 1996 1,000,000 100% $.25 September,
(Former CEO) 2000
George S. Smith 1996 0 0% $0 --
CEO
==========================================================================================================================
</TABLE>
1. Excludes $9,349 of travel and living expenses and $47,619 of consulting fees
paid to Mr. Smith for work he completed as a consultant prior to being
re-appointed Chief Executive Officer on June 15, 1996.
(15)
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
AGGREGATED OPTIONS/SAR EXERCISES IN THE FISCAL YEAR 1996 AND FY-END OPTION/SAR VALUES
- -----------------------------------------------------------------------------------------------------------------
Number of Securities
Shares Underlying Exercised Value of
Acquired on Options/ SARs at FY-End Unexercised In-
Exercise (#) (#) the-Money
Value Exercisable/ Unexercisable Options/SARs at
Name Year Realized FY-End ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steven M. Peck 1996 ____ 0 1,000,000 (E) $50,000
(Former CEO)
George S. Smith 1996 ____ 0 2,669,840 (E)/O(U) $340,000
CEO
=================================================================================================================
</TABLE>
(16)
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning stock
ownership of all persons known by the Company to own beneficially 5% or more of
the outstanding shares of the Company's Common Stock, each director, and all
executive officers and directors of the Company as a group, as of September 30,
1996 and their percentage ownership of Common Stock and their percentage voting
power.
<TABLE>
<CAPTION>
====================================================================================================================
Name and Address of Beneficial Owners Amount and Nature of Percent
Beneficial Ownership(1) Ownership
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
George S. Smith (2) 6,228,550 18.02
3130 Alexis Drive
Palo Alto, CA 94304
- --------------------------------------------------------------------------------------------------------------------
H. Thomas Ferstl (3) 3,610,000 10.92
8761 State Street
Millington, MI 48746
- --------------------------------------------------------------------------------------------------------------------
Avonwood Capital Corporation (4) 2,200,080 6.83
3 Radnor Corporation Center, Suite 400
Radnor, PA 19087
- --------------------------------------------------------------------------------------------------------------------
Sean F. Lee (5) 1,482,160 4.83
InfoPak, Inc.
8855 N. Black Canyon Highway, Suite 2000
Phoenix, AZ 85021
- --------------------------------------------------------------------------------------------------------------------
John Arrillaga (6) 1,750,000 5.48
1950 Cowper Street
Palo Alto, CA 93401
- --------------------------------------------------------------------------------------------------------------------
Richard Peery (7) 1,750,000 5.48
2200 Cowper Street
Palo Alto, CA 94301
- --------------------------------------------------------------------------------------------------------------------
James B. Salmon (8) 1,810,000 5.72
1525 Lakesite Drive
Birmingham, AL 35235
- --------------------------------------------------------------------------------------------------------------------
Hans J. Kaemmlein (9) 1,700,000 5.29
80 Orville Drive
Bohemia, NY 11716
- --------------------------------------------------------------------------------------------------------------------
Alejandro and Lida Zaffaroni (10) 1,469,999 4.64
4005 Miranda Avenue, Suite 180
Palo Alto, CA 94304
- --------------------------------------------------------------------------------------------------------------------
All executive officers and directors as a group (6 persons) (11) 3,715,710 12.20
====================================================================================================================
</TABLE>
(1) Except as otherwise indicated, all of the shares are owned beneficially and
of record. Beneficial ownership has been determined in accordance with Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended.
(2) Mr. Smith, owns 2,128,550 shares of the Company's Common Stock. Also
included in the amount are common stock purchase warrants to purchase
2,600,000 shares of the Company's Common Stock and 15,000 shares of the
Company's Second Series B Convertible Preferred 8% Stock which is
convertible into 1,500,000 shares of the Company's Common Stock.
(3) Mr. Ferstl owns common stock purchase warrants to purchase 1,010,000 shares
of the Company's Common Stock and 26,000 shares of the Company's Second
Series B Convertible Preferred 8% Stock which is the convertible into
2,600,000 shares of the Company's Common Stock.
(4) Avonwood Capital Corporation owns 450,080 shares of the Company's Common
Stock. Also included in the amount are common stock purchase warrants to
purchase 1,750,000 shares of the Company's Common Stock.
(17)
<PAGE>
(5) Mr. Lee, a Director of the Company and President of InfoPak, Inc. owns
1,262,160 shares of the Company's Common Stock which is owned by the Lee
Family Partnership of which Mr. Lee is the general partner. Also included in
the amount are 7,000 shares of the Company's Series P Convertible Preferred
which is convertible into 70,000 shares of the Company's Common Stock and
common stock purchase warrants to purchase 150,000 shares of the Company's
common stock. The warrants are for a five year period with an exercise price
of $.15 per share. Also, Mr. Lee owns 19,625 shares of the Company's Series
P Convertible Preferred which is being held in escrow.
(6) Mr. Arrillaga owns 250,000 shares of Common Stock and 15,000 shares of the
Company's Second Series B Convertible Preferred 8% Stock which is the
convertible into 1,500,000 shares of the Company's Common Stock.
(7) Mr. Peery owns 250,000 shares of Common Stock and 15,000 shares of the
Company's Second Series B Convertible Preferred 8% Stock which is the
convertible into 1,500,000 shares of the Company's Common Stock.
(8) Mr. Salmon owns 610,000 shares of the Company's Common Stock. Also included
in the amount are common stock purchase warrants to purchase 50,000 shares
of the Company's Common Stock and 11,500 shares of the Company's Second
Series B Convertible Preferred 8% Stock which is the convertible into
1,150,000 shares of the Company's Common Stock.
(9) Mr. Kaemmlein owns common stock purchase warrants to purchase 200,000 shares
of the Company's Common Stock and 15,000 shares of the Company's Second
Series B Convertible Preferred 8% Stock, which is convertible into 1,500,000
shares of the Company Common Stock.
(10) Dr. and Mrs. Zaffaroni jointly own 249,999 shares of the Company's Common
Stock and 12,200 shares of the Company's Second Series B Convertible
Preferred 8% Stock which is the convertible into 1,220,000 shares of the
Company's Common Stock.
(11) Does not include common stock purchase warrants to purchase in the
aggregate 2,975,000 shares of the Company's Common Stock, and warrants to
purchase 32,500 shares of the Company's Series B Convertible Preferred 8%
Stock which would be convertible into 3,250,000 shares of the Company's
Common Stock.
Stock Option Plan
The Company has adopted a stock option plan (the "Plan") covering 500,000
shares of the Company's Common Stock, $.001 par value, pursuant to which
officers, directors, key employees and consultants of the Company are eligible
to receive incentive as well as nonqualified stock options and Stock
Appreciation Rights ("SAR'S"). The Plan, which expires in September 1998, is
administered by the Board of Directors. Incentive stock options granted under
the Plan are exercisable for a period of up to 10 years from the date of grant
and at an exercise price which is not less than the fair market value of the
Common Stock on the date of the grant, except that the term of an incentive
stock option granted under the Plan to a stockholder owning more than 10% of the
outstanding Common Stock may not exceed five years and the exercise price of an
incentive stock option granted to such a stockholder may not be less than 110%
of the fair market value of the Common Stock on the date of the grant.
Nonqualified stock options may be granted on terms determined by the Board of
Directors. SAR's which give the holder the privilege of surrendering such rights
for the appreciation in the Company's Common Stock between the time of grant and
the surrender, may be granted on any terms determined by the Board of Directors.
No SAR's have been granted.
As of September 30, 1996, 20,000 options were in effect. The exercise price
of the options granted under the Plan to date is $.48 per share.
1996 Equity Incentive Plan
The Company, in June 1996. adopted the 1996 Equity Incentive Plan (the "1996
Plan") covering 10,000,000 shares of the Company's Common Stock pursuant to
which employees, consultants and other persons or entities who are in a position
to make a significant contribution to the success of the Company's are eligible
to receive awards in the form of incentive or non-incentive options, stock
appreciation rights, restricted stock or deferred stock. The 1996 Plan will
terminate ten (10) years of the effective date after 1996 Plan, subject to
approval of the 1996 Plan by the Company's stockholders. The 1996 Plan was
deeded effective June 12, 1996. The 1996 Plan has not been approved by the
Company's stockholders. Grants of awards under the 1996 Plan may be made prior
to the receipt of stockholders approval, subject to such approval of the 1996
Plan. The 1996 Plan is administered by the Compensation Committee of the Board
of Directors. In its discretion, the Board of Directors may elect to administer
the 1996 Plan. Restricted stock entities the recipients to receive shares of the
Company's Common Stock subject to such restriction and condition as the
Compensation Committee may determine for no consideration or such considerations
as determined by the Compensation Committee. Any participants receiving such
shares will have all of the rights of a stockholder of the Company including the
right to veto the shares and the right to receive dividends. Deferred stock
entitles the recipients to receive shares of the Company's Common Stock in the
future.
As of September 30, 1996, 252,350 shares have been issued pursuant to this
plan.
(18)
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sean F. Lee has an employment agreement with InfoPak, a wholly owned
subsidiary of the Company. The term of the agreement is three years ending in
September 1998. Mr. Lee's base compensation is $100,000 per year of which 40% is
currently being deferred. Mr. Lee is also entitled to participate in InfoPak's
Bonus Plan. The Bonus Plan is set at 10% of InfoPak's pre-tax profits. Fifty
percent of the Bonus Plan is set aside for target management compensation. Mr.
Lee's target compensation is $300,000 per year and his percentage of the 50% is
62%. The other 50% of the Bonus Plan is set aside for all InfoPak employees,
including management. Pursuant to the Agreement, Mr. Lee was appointed to the
Company's Board of Directors and the Company is required to nominate Mr. Lee to
continue to serve on the Board of Directors during the term of the Agreement.
Mr. Lee also received 7,000 shares of the Company's Series P Convertible
Preferred Stock as a signing bonus. Each share of the Series P Convertible
Preferred Stock is convertible into 10 shares of the Company's Common Stock.
In September 1995, Mr. Lee and his spouse as a creditor of InfoPak canceled
a promissory note in the amount of $170,039 in exchange for 13,702 shares of the
Company's Series P Convertible Preferred Stock. In October 1995, Mr. Lee was
granted common stock purchase warrants to purchase 30,000 shares of the
Company's common stock. The warrants are for a five year period with an exercise
price of $.15 per share.
Mr. Lee is a party to an Asset Purchase Agreement dated September 6, 1995,
between InfoPak, Mr. Lee and two other executive officers of InfoPak. Pursuant
to the terms of the Agreement Mr. Lee and the other InfoPak executives sold
certain digital sound device technology to InfoPak in return for a royalty of 3%
(1% to each seller) of the net revenue per quarter from any sales of the device.
Net revenue is defined in the Agreement to be gross revenues from the sale or
license of the technology less returns. The term of the Agreements is the
earlier of seventeen years or for the term of any patent that may be issued on
the technology.
George S. Smith is paid at an annual rate of $120,000 of which one half is
currently being deferred.
ITEM 13. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
A. The following documents are filed as part of this report:
1. The consolidated financial statements filed as part of this report are
listed under the caption "Index to Financial Statements and Schedules",
appearing elsewhere in this report.
2. The consolidated financial schedules of the Company are filed as part
of this report:
Schedule V - Property and Equipment
Schedule VI - Accumulated Depreciation and Amortization of Property and
Equipment
3. The following Exhibits are filed herein:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3.1(a) Certificate of Incorporation and By Laws
3.2(b) Form of Certificate of Designation - Series A Convertible Preferred Stock
3.4(b) Form of Certificate of Designation - Series B Convertible Preferred Stock
3.4a(c) Form of Certificate of Designation - Series P Convertible Preferred Stock
3.4b(d) Form of Certificate of Designation - Series S Convertible Preferred Stock
3.4c(d) Form of Certificate of Designation - Series C Convertible Preferred Stock
4.1(a) Warrant Agreement (including form of warrant)
10.1(b) Agreement of lease between 718 Arch Street Associates, Ltd. and registrant made as of March 1, 1994
</TABLE>
(19)
<PAGE>
<TABLE>
<S> <C>
10.2(c) Agreement and Plan of Merger By and Among InfoPak, Inc., Certain Shareholders of InfoPak, Inc., InfoPak
Acquisition Co. and registrant dated September 6, 1995.
10.3(b) Stock Option Plan
10.4(d) 1996 Equity Incentive Plan
21.0(b) Subsidiaries of the registrant
27.0 Financial Data Schedule
B. Reports on Form 8-K filed: September 27, 1995 and as amended November 21, 1995.
To report an event under Item 2 regarding the registrants' acquisition
of all of the issued and outstanding capital stock of InfoPak, Inc.
</TABLE>
- --------------------------------
(a) Incorporated by reference from the registrants registration statement
on Form S-1 (No. 33-24554)
(b) Incorporated by reference from the registrants' Annual Report on Form
10-KSB for the fiscal years ended June 30, 1992, 1993, 1994 and 1995
(c) Incorporated by reference from registrants' Current Report on Form 8-K
dated September 27, 1995.
(d) Incorporated by reference from registrant registration statement on
Form S8 (No. 333-06679).
(20)
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
YEARS ENDED JUNE 30, 1996 AND 1995
Index to Consolidated Financial Statements and Schedules
--------------------------------------------------------
Page
----
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance Sheet F-3
Statements of Operations F-4
Statements of Stockholders' Equity (Deficiency) F-5
Statements of Cash Flows F-9
Notes to Consolidated Financial Statements F-11
Schedules
Independent Auditors' Report F-23
Schedule IV - Property and Equipment F-24
Schedule V - Accumulated Depreciation and Amortization of
Property and Equipment F-25
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Dimensional Visions Group, Ltd. and Subsidiaries
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Dimensional
Visions Group, Ltd. and Subsidiaries (the "Company") as of June 30, 1996, and
the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the two years in the period ended June
30, 1996. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dimensional Visions Group, Ltd. and
Subsidiaries at June 30, 1996 and the results of their operations and their cash
flows for each of the two years in the period ended June 30, 1996 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has been funding
its operations by selling its securities in private placements, loans, certain
employees and consultants deferring their compensation and sales of its
products. As described in Note 1 to the consolidated financial statements, the
Company has suffered recurring losses from operations and has limited operations
and resources, which raises substantial doubt about the Company's ability to
continue as a going concern. The future of the Company as an operating business
will depend on (1) its ability to successfully market its product, (2) obtain
sufficient capital contributions or financing as may be required to sustain its
current operations and fulfill its sales and marketing activities, (3) achieving
a level of sales adequate to support the Company's cost structure, and (4) to
ultimately achieve a level of profitability. Management's plan concerning these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
GITOMER & BERENHOLZ, P.C.
Jenkintown, Pennsylvania
September 30, 1996, except for
paragraph 2 of Note 15, as to which
the date is October 10, 1996
F-2
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
ASSETS
------
<S> <C>
Current assets
Cash and cash equivalents $ 203,073
Accounts receivable, trade, net of allowance for bad debts of $215,743 32,608
Inventory 89,458
Prepaid supplies and expenses 32,447
-------------
Total current assets 357,586
-------------
Equipment and leasehold improvements
Equipment 1,891,703
Furniture and fixtures 143,408
Leasehold improvements 109,446
-------------
2,144,557
Less accumulated depreciation and amortization 2,007,317
-------------
137,240
-------------
Other assets
Goodwill, net of accumulated amortization of $152,790 812,199
Patent rights and other assets 51,505
Deferred costs 50,389
-------------
914,093
-------------
Total assets $ 1,408,919
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable, accrued expenses and other liabilities $ 348,058
-------------
Total current liabilities 348,058
-------------
Long-term debt 325,000
-------------
Total liabilities 673,058
-------------
Commitments and contingencies -
Stockholders' equity
Preferred stock - $.001 par value, authorized 10,000,000 shares; issued and
outstanding 632,207 shares 632
Additional paid-in capital 3,503,161
-------------
3,503,793
Common stock - $.001 par value, authorized 100,000,000 shares; issued and
outstanding 26,711,657 shares 26,712
Additional paid-in capital 13,963,359
Deficit (16,758,003)
-------------
Total stockholders' equity 735,861
-------------
Total liabilities and stockholders' equity $ 1,408,919
==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Operating revenue $ 1,083,897 $ 134,028
Cost of sales 841,805 241,240
----------- -----------
Gross profit (loss) 242,092 (107,212)
Operating expenses
Engineering and development costs 366,650 299,267
Marketing expenses 246,704 120,359
General and administrative expenses 1,569,688 460,680
----------- -----------
Total operating expenses 2,183,042 880,306
----------- -----------
Loss before other income (expenses) (1,940,950) (987,518)
Other income (expenses)
Interest expense (111,446) (208,717)
Interest income 13,539 1,318
Gain on sale of equipment - 2,585
Write-off of customer deposits 156,000 -
Amortization of goodwill (152,790) -
----------- -----------
(94,697) (204,814)
----------- -----------
Net loss $(2,035,647) $(1,192,332)
=========== ===========
Loss per share of common stock
Net loss $ (.12) $ (.07)
=========== ==========
Weighted average shares of common stock outstanding 17,069,442 16,476,769
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
(Series A Convertible) Additional ($.001 Par Value)
---------------------- Paid-in ---------------------
Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1994 77,250 $ 77 $772,423 16,361,098 $16,361
Issuance of 165,000 shares of the
Company's common stock in bonuses to
certain officers/ employees/directors
of the Company - - - 165,000 165
Exercise of 110,000 warrants to
purchase 110,000 shares of the
Company's common stock @ $.01 per share - - - 110,000 110
Issuance of 37,500 warrants to purchase
37,500 shares of the Company's common
stock @ $.15 per share for a five year
period commencing April, 1995 for
consultingservices rendered to the Company - - - - -
Issuance of 500,000 warrants to purchase
500,000 shares of the Company's common
stock @ $.10 per share for a three and a
half year period commencing May, 1995 - - - - -
Issuance of 50,000 warrants to purchase
50,000 shares of the Company's common
stock @$.01 per share for a one year
period commencing May, 1995 - - - - -
Issuance of 250,000 warrants to purchase
250,000 shares of the Company's common
stock @ $.15 per share for a five year
period commencing May, 1995 - - - - -
Exercise of 300,000 warrants to purchase
300,000 shares of the Company's common
stock @ $.15 per share (250,000 shares)
and $.01 per share (50,000 shares) - - - 300,000 300
Net loss - - - - -
------ ---------- -------- ------------ -------
Balance, June 30, 1995 77,250 $ 77 $772,423 16,936,098 $16,936
====== ========== ======== ========== =======
</TABLE>
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Additional
Paid-in
Capital Deficit Total
------- ------- -----
<S> <C> <C> <C>
Balance, July 1, 1994 $11,726,027 $(13,530,024) $(1,015,136)
Issuance of 165,000 shares of the
Company's common stock in bonuses to
certain officers/ employees/directors
of the Company 16,335 - 16,500
Exercise of 110,000 warrants to
purchase 110,000 shares of the
Company's common stock @ $.01 per share 990 - 1,100
Issuance of 37,500 warrants to purchase
37,500 shares of the Company's common
stock @ $.15 per share for a five year
period commencing April, 1995 for
consulting services rendered to the
Company 3,375 - 3,375
Issuance of 500,000 warrants to purchase
500,000 shares of the Company's common
stock @ $.10 per share for a three and a
half year period commencing May, 1995 60,000 - 60,000
Issuance of 50,000 warrants to purchase
50,000 shares of the Company's common
stock @$.01 per share for a one year
period commencing May, 1995 7,500 - 7,500
Issuance of 250,000 warrants to purchase
250,000 shares of the Company's common
stock @ $.15 per share for a five year
period commencing May, 1995 30,000 - 30,000
Exercise of 300,000 warrants to purchase
300,000 shares of the Company's common
stock @ $.15 per share (250,000 shares)
and $.01 per share (50,000 shares) 37,700 - 38,000
Net loss - (1,192,332) (1,192,332)
----------- ------------- ------------
Balance, June 30, 1995 $11,881,927 $(14,722,356) $(2,050,993)
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value ) Additional ($.001 Par Value)
------------------ Paid-in -----------------
Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1995 77,250 $ 77 $772,423 16,936,098 $16,936
Conversion of 36,750 shares of Series A
convertible preferred stock to 1,470,000
shares of the Company's common stock (36,750) (37) (367,463) 1,470,000 1,470
Surrender of 3,215,000 shares of the
Company's common stock in exchange for
32,150 shares of Series S convertible
preferred stock by mainly officers and
directors 32,150 32 377,968 (3,215,000) (3,215)
Sale of common stock net of offering
cost of $75,000 - - - 3,000,000 3,000
Issuance of 2,750,000 warrants; in
connection with the sale of 3,000,000
shares of the Company's common stock
(1,250,000 warrants) to a financial
consultant (500,000 warrants) and to
the chief executive officer (1,000,000
warrants) to purchase the Company's
common stock (750,000 shares at $.15
per share, 500,000 shares at $.50 per
share, 500,000 shares at $.15 per share
and 1,000,000 shares at $.25 per share)
for a five year period commencing
September, 1995 - - - - -
Exercise of 310,000 warrants to
purchase 310,000 shares of the
Company's common stock at $.01 per share - - - 310,000 310
Issuance of Series P convertible
preferred stock in connection with the
merger of InfoPak, Inc., debt cancellation
and signing bonuses to certain employees
and consultant of InfoPak, Inc. 548,879 549 1,371,649 - -
Issuance of 105,000 warrants to purchase
105,000 shares of the Company's Series
B preferred stock at $10 per share for
a three year period commencing in August
and September, 1995 - - - - -
</TABLE>
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Additional
Paid-in
Capital Deficit Total
------- ------- -----
<S> <C> <C> <C>
Balance, July 1, 1995 $11,881,927 $(14,722,356) $(2,050,993)
Conversion of 36,750 shares of Series A
convertible preferred stock to 1,470,000
shares of the Company's common stock 366,030 - -
Surrender of 3,215,000 shares of the
Company's common stock in exchange for
32,150 shares of Series S convertible
preferred stock by mainly officers and
directors (374,785) - -
Sale of common stock net of offering
cost of $75,000 672,000 - 675,000
Issuance of 2,750,000 warrants; in
connection with the sale of 3,000,000
shares of the Company's common stock
(1,250,000 warrants) to a financial
consultant (500,000 warrants) and to
the chief executive officer (1,000,000
warrants) to purchase the Company's
common stock (750,000 shares at $.15
per share, 500,000 shares at $.50 per
share, 500,000 shares at $.15 per share
and 1,000,000 shares at $.25 per share)
for a five year period commencing
September, 1995 100,000 - 100,000
Exercise of 310,000 warrants to
purchase 310,000 shares of the
Company's common stock at $.01 per share 2,790 - 3,100
Issuance of Series P convertible
preferred stock in connection with the
merger of InfoPak, Inc., debt cancellation
and signing bonuses to certain employees
and consultant of InfoPak, Inc. - - 1,372,198
Issuance of 105,000 warrants to purchase
105,000 shares of the Company's Series
B preferred stock at $10 per share for
a three year period commencing in August
and September, 1995 - - -
</TABLE>
F-6
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value ) Additional ($.001 Par Value)
------------------ Paid-in -----------------
Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Issuance of 14,500 warrants to purchase
14,500 shares of the Company's common
stock at $.01 per share for a one year
period commencing in August and
September, 1995 - - - - -
Issuance of 150,000 warrants to a
director to purchase 150,000 shares of
the Company's common stock at $.15 per
share for a five year period commencing
October, 1995 - - - - -
Secured noteholders exercised their
Series B warrants to purchase 190,700
shares of Series B convertible preferred
stock (175,700 on October 1, 1995 and
15,000 on February 22, 1996 by a director) 190,700 191 1,906,809 - -
Secured noteholders converted $262,750
of interest due on the notes into
26,275 shares of Series C convertible
preferred stock 26,275 26 262,724 - -
Conversion of 29,000 shares of Series S
convertible preferred stock to
2,900,000 shares of the Company's
common stock (29,000) (29) (356,471) 2,900,000 2,900
Conversion of 174,442 shares of Series
P convertible preferred stock to
1,744,420 shares of the Company's
common stock (174,442) (174) (435,931) 1,744,420 1,745
Conversion of 2,855 shares of Series C
convertible preferred stock to 28,500
shares of the Company's common stock (2,855) (3) (28,547) 28,550 29
Issuance of 100,000 warrants to purchase
the Company's common stock at $.50 per
share for a five year period commencing
March, 1996, for services in
connection with debenture financing - - - - -
Issuance of 390,000 warrants to purchase
the Company's common stock at $.15 per
share (290,000 warrants) and $.50 per
share (100,000 warrants) for a five year
period commencing May, 1996
for financial consulting services - - - - -
</TABLE>
<PAGE>
[RESTUBBED FORM TABLE ABOVE]
<TABLE>
<CAPTION>
Additional
Paid-in
Capital Deficit Total
------- ------- -----
<S> <C> <C> <C>
Issuance of 14,500 warrants to purchase
14,500 shares of the Company's common
stock at $.01 per share for a one year
period commencing in August and
September, 1995 - - -
Issuance of 150,000 warrants to a
director to purchase 150,000 shares of
the Company's common stock at $.15 per
share for a five year period commencing
October, 1995 7,500 - 7,500
Secured noteholders exercised their
Series B warrants to purchase 190,700
shares of Series B convertible preferred
stock (175,700 on October 1, 1995 and
15,000 on February 22, 1996 by a director) - - 1,907,000
Secured noteholders converted $262,750
of interest due on the notes into
26,275 shares of Series C convertible
preferred stock - - 262,750
Conversion of 29,000 shares of Series S
convertible preferred stock to
2,900,000 shares of the Company's
common stock 353,600 - -
Conversion of 174,442 shares of Series
P convertible preferred stock to
1,744,420 shares of the Company's
common stock 434,360 - -
Conversion of 2,855 shares of Series C
convertible preferred stock to 28,500
shares of the Company's common stock 28,521 - -
Issuance of 100,000 warrants to purchase
the Company's common stock at $.50 per
share for a five year period commencing
March, 1996, for services in
connection with debenture financing - - -
Issuance of 390,000 warrants to purchase
the Company's common stock at $.15 per
share (290,000 warrants) and $.50 per
share (100,000 warrants) for a five year
period commencing May, 1996
for financial consulting services 54,600 - 54,600
</TABLE>
F-7
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value) Additional ($.001 Par Value)
------------------ Paid-in -----------------
Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Issuance of 500,000 warrants to purchase
the Company's common stock at $.31 per
share for a three year period commencing
June, 1996 in connection
with the debenture financing - - - - -
Conversion of the debenture financing
to 3,495,239 shares of the Company's
common stock - - - 3,495,239 3,495
Issuance of 20,000 warrants to purchase
the Company's common stock at $.50 per
share for a four year period commencing
June, 1996, for consulting services to
the Company - - - - -
Issuance of 42,350 shares of the
Company's common stock at $.26 per
share for consulting services to the
Company - - - 42,350 42
Net loss - - - - -
--------------------- ----------------------------------------
Balance, June 30, 1996 632,207 $ 632 $3,503,161 26,711,657 $26,712
======= ====== ========== ========== =======
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Additional
Paid-in
Capital Deficit Total
------- ------- -----
<S> <C> <C> <C>
Issuance of 500,000 warrants to purchase
the Company's common stock at $.31 per
share for a three year period commencing
June, 1996 in connection
with the debenture financing - - -
Conversion of the debenture financing
to 3,495,239 shares of the Company's
common stock 423,947 - 427,442
Issuance of 20,000 warrants to purchase
the Company's common stock at $.50 per
share for a four year period commencing
June, 1996, for consulting services to
the Company 1,900 - 1,900
Issuance of 42,350 shares of the
Company's common stock at $.26 per
share for consulting services to the
Company 10,969 - 11,011
Net loss - (2,035,647) (2,035,647)
----------- ------------ ------------
Balance, June 30, 1996 $13,963,359 $(16,758,003) $ 735,861
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Operating activities
Net loss $(2,035,647) $(1,192,332)
Adjustments to reconcile net loss to net cash used in operating
activities
Compensation paid to officers/employees through issuance of
warrants and common stock 7,500 16,500
Interest paid through issuance of warrants - 67,500
Consulting service paid through issuance of warrants and
common stock 167,511 4,625
Depreciation and amortization of property and equipment 87,491 150,491
Amortization of other assets and deferred costs 20,762 4,074
Amortization of goodwill 152,790 -
Gain on sale of equipment - (2,584)
Changes in assets and liabilities which provided (used) cash
Accounts receivable, trade (5,051) (18,690)
Inventory 51,378 12,634
Prepaid expenses and deposit 10,914 3,118
Accounts payable, accrued expenses and other liabilities
(including accrued interest classified as long term) (108,012) 281,769
----------- -----------
Net cash used in operating activities (1,650,364) (672,895)
----------- -----------
Investing activities
Cash acquired in acquisition 275,632 -
Proceeds from sale of equipment - 3,107
Purchase of equipment (40,360) (16,374)
Capitalized legal fees related to acquisition (36,866) -
Deposits (1,041) -
----------- -----------
Net cash provided by (used in) investing activities 197,365 (13,267)
----------- -----------
Financing activities
Proceeds from
Sale of common stock net of offering costs $75,000 675,000 -
Issuance of common stock in connection with the exercise of
warrants 3,100 39,100
Borrowings net of deferred costs $20,000 and payment of
note $50,000 750,000 757,000
----------- -----------
Net cash provided by financing activities 1,428,100 796,100
----------- -----------
Net increase (decrease) in cash and cash equivalents (24,899) 109,938
Cash and cash equivalents, beginning of year 227,972 118,034
----------- -----------
Cash and cash equivalents, end of year $ 203,073 $ 227,972
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 7,500 $ -
=========== ===========
Issuance of common stock in connection with officers/employees
stock bonus $ - $ 16,500
=========== ===========
Issuance of warrants in connection with
Consulting service $ 167,511 $ 33,375
=========== ===========
Financing $ - $ 67,500
=========== ===========
Compensation $ 7,500 $ -
=========== ===========
</TABLE>
F-9
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Supplemental disclosure of non-cash investing and financing activities for
fiscal year 1996:
1,470,000 shares of the Company's common stock was issued as a result
of the conversion of 36,750 shares of Series A Convertible Preferred
Stock valued at $367,500.
In August, 1995 in connection with the sale of 3,000,000 shares of the
Company's common stock to third parties, certain stockholders,
consisting mainly of officers and directors, surrendered 3,215,000 of
the Company's common stock in exchange for 32,150 shares of Series S
Preferred Stock valued at $378,000. In March, 1996, after the
stockholders approved an increase in the number of authorized common
stock shares, 29,000 shares of Series S Preferred Stock was converted
back to 2,900,000 shares of the Company's common stock valued at
$356,500.
The Company acquired all of the outstanding common stock of InfoPak,
Inc. for 500,000 shares of Series P Convertible Preferred Stock
("Series P Preferred") valued at $1,250,000. At the date of
acquisition, InfoPak's assets were valued at $503,944, (including cash
of $275,632), and its liabilities at $103,590. The Company also issued
31,379 shares of Series P Preferred valued at $78,448 in exchange for
the cancellation of debt of certain shareholders of InfoPak. The
Company accounted for this transaction as a purchase and, accordingly,
recorded goodwill of $964,989.
Certain InfoPak employees under contract and a consultant also received
17,500 shares of Series P Convertible Preferred Stock from the Company
(valued at $43,750) as a signing bonus. The Company also issued 150,000
of warrants, to purchase the Company's common stock at $.15 per share,
to an officer of InfoPak, which were valued at $7,500 and expensed.
The Company issued 500,000 common stock warrants to a financial
consultant which were valued at $100,000 and expensed.
The Company issued 3,495,239 shares of the Company's common stock in
connection with the conversion of approximately $425,000 of convertible
debentures to common stock under a Regulation S Securities Subscription
Agreement.
1,744,420 shares of the Company's common stock was issued as a result
of the conversion of 174,442 shares of Series P Convertible Preferred
Stock valued at $436,105.
190,700 shares of Series B Convertible Preferred Stock was issued as a
result of conversion of $1,907,000 of secured notes and 26,275 shares
of Series C Convertible Preferred Stock was issued as payment for
$262,750 of accrued interest on secured notes.
28,550 shares of the Company's common stock was issued as a result of
conversion of 2,855 shares of Series C Convertible Stock valued at
$28,550.
42,350 shares of the Company's common stock was issued to consultants
for services valued at $11,011.
The Company issued 410,000 common stock warrants for consulting
services provided to the Company which were valued at $56,500 and
expensed.
See notes to consolidated financial statements.
F-10
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND 1995
Note 1: Summary of Significant Accounting Policies
Description of Business, Financing and Basis of Financial
Statement Presentation
Dimensional Visions Group, Ltd. (the "Company" or "DVGL") was
incorporated in Delaware on May 12, 1988. The Company was a
development stage company through June 30, 1994 and had an
accumulated deficit during the development stage of
$13,530,024. The Company produces and markets lithographically
printed stereoscopic prints commonly referred to as
three-dimensional prints, as well as lithographically printed
animation which the Company has termed Animotion.(TM)
The Company, on September 12, 1995 completed the acquisition
of InfoPak, Inc. which manufacturers and markets hardware and
software information and audio playback systems and method
products and programs.
The Company has financed its development through the sale of
its securities, loans and sale of surplus equipment and by
certain employees and consultants deferring their compensation
and sale of products. The Company has had limited sales of its
products during the year ended June 30, 1996. Even though the
sales have significantly increased over the prior years the
volume of business is not sufficient to support the Company's
cost structure.
Liquidity and Capital Resources
The Company has incurred losses since inception of
$16,758,003, and has limited working capital of $9,528 as of
June 30, 1996. The future of the Company as an operating
business will depend on (1) its ability to successfully market
its product, (2) obtain sufficient capital contributions or
financing as may be required to sustain its current operations
and to fulfill its sales and marketing activities, (3)
achieving a level of sales adequate to support the Company's
cost structure, and (4) to ultimately achieve a level of
profitability. Management's plan to address these issues
includes (a) substantially increasing marketing efforts of the
Company's products and increasing sales results, (b) exercise
tight cost controls to conserve cash, (c) raise additional
long term financing, (d) evaluate possible merger or
acquisition opportunities, and (e) alliances or joint venture
agreement opportunities.
The consolidated financial statements have been prepared on a
going concern basis which contemplates the realization and
settlement of liabilities and commitments in the normal course
of business. The Company expects to incur expenditures to
further expand the lithographic market. The working capital at
June 30, 1996, plus the limited revenue will not be sufficient
to satisfy the present cost structure. Management recognizes
that the Company must generate additional resources or
substantially modify its operating costs to enable it to
continue operations with available resources. Management plans
include the sale of additional equity securities, establishing
alliance or other joint venture arrangements with entities
interested in and resources to support the Company's current
products, or other business transactions which will generate
sufficient resources to assure continuation of the Company's
operations.
F-11
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 1: Summary of Significant Accounting Policies (Continued)
Liquidity and Capital Resources (Continued)
Further, there can be no assurances, assuming the Company
successfully raises additional funds or enters into a business
alliance, that the Company will achieve profitability or
positive cash flow. If the Company is unable to obtain
adequate additional financing or enter into such business
alliance, management will be required to sharply curtail the
Company's lithographic product and curtail its overall
operations.
Consolidation Policy
The consolidated financial statements include the accounts of
DVGL and its wholly-owned subsidiaries, InfoPak, Inc.
(acquired September 12, 1995) DVG Plastics, Inc., Digital
Dimensions, Inc. and DV3D Images, Inc. As of June 30, 1996,
all of the wholly-owned subsidiaries are inactive, except for
InfoPak, Inc. All significant inter-company balances and
transactions have been eliminated in consolidation.
Inventory
Inventory is stated at the lower of cost or market. Cost is
determined by the first-in, first-out method. Inventory
consists of raw materials of $68,088 and finished goods of
$21,370.
Equipment and Leasehold Improvements and Depreciation and
Amortization
Equipment and leasehold improvements are stated at cost.
Depreciation and amortization are provided by the use of the
straight-line method over the estimated useful lives of the
assets as follows:
Equipment 5 - 7 years
Furniture and fixtures 5 years
Leasehold improvements Term of the initial
operating lease (5 years)
Patent Rights
Costs incurred to acquire patent rights and the related
technology are amortized over the shorter of the estimated
useful life or the remaining term of the patent rights. In the
event that the costs of patent rights and/or acquired
technology are abandoned, the write-off will be charged to
expenses in the period the determination is made to abandon
them.
Goodwill
The excess of the cost over the net assets acquired relates to
the acquisition of InfoPak, Inc. The goodwill is being
amortized over five years.
F-12
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 1: Summary of Significant Accounting Policies (Continued)
Engineering and Development Costs
The Company charges to engineering and development costs all
items of a non-capital nature related to bringing
"significant" improvement to its product. Such costs include
salaries and expenses of employees and consultants, the
conceptual formulation, design, and testing of the products
and creation of prototypes. All such costs of a capital nature
are capitalized.
Income Taxes
Deferred income taxes reflect the net effect of (a) temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes, and (b) operating loss
carryforwards.
Employer's Accounting for Post Employment Benefits
Employers Accounting for Post Employment Benefits Statement of
Financial Accounting Standards No. 112, Employers Accounting
for Post Employment Benefits (SFAS No. 112), establishes
accounting standards for post employment benefits and requires
either the accrual of the obligation or disclosure, depending
upon the circumstances, for the cost of benefits provided to
former or inactive employees after employment or before
retirement. The Company adopted SFAS No. 112 during the first
quarter of 1995. Such adoption had no effect on the Company's
operations or financial position, since the Company does not
have any post-retirement benefits.
Net Loss Per Share of Common Stock
Net loss per share of common stock is based on the weighted
average of shares of common stock outstanding. Outstanding
warrants or options are not considered in the calculation of
net loss per share of common stock, as they would have an
anti-dilutive effect.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses
during the reporting periods. Actual results could differ from
those estimates.
F-13
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 2: Acquisition
On September 12, 1995, the Company acquired all the
outstanding common stock of InfoPak, Inc. in exchange for
500,000 shares of Series P Convertible Preferred Stock valued
at $1,250,000. The fair value of the InfoPak assets acquired
was $503,944 (originally reported in previously filed
quarterly financial statements at $442,769 and subsequently
adjusted at year end by $61,175), which included $275,632 of
cash, and the liabilities assumed equaled $103,590. The
Company also issued 31,379 shares of Series P Convertible
Preferred Stock valued at $78,448, in exchange for the
cancellation of certain Series P Convertible Preferred Stock
valued at $78,448, in exchange for the cancellation of certain
notes payable, including related accrued interest, due to
certain shareholders of InfoPak. The Company has accounted for
this transaction as a purchase and, accordingly, resulted in
the Company recording goodwill of $964,989, which will be
amortized over five years.
In addition, certain employees under contract and a consultant
received 17,500 shares of Series P Convertible Preferred Stock
valued at $43,750 as signing bonuses, which are being
amortized over the term of the contracts.
The following proforma results are unaudited and were
prepared under the assumption that the transaction was
effective at the beginning of each year presented.
1996 1995
---- ----
Sales $ 1,657,895 $ 2,334,025
Net loss (2,374,803) (1,697,191)
----------- -----------
Net loss per share $ (.14) $ (.10)
=========== ===========
Note 3: Cash and Cash Equivalents
The Company considers all highly liquid investments, with an
original maturity of three months or less when purchased, to
be cash equivalents.
Cash and cash equivalents as of June 30, 1996 are summarized
as follows:
Cash on hand $ 123
Cash in bank 25,971
Money market account 176,979
------------
$ 203,073
============
The Company maintains its cash in banks located in
Pennsylvania, Arizona and California. The total cash balances
are insured by the FDIC up to $100,000 per financial
institution. As of June 30, 1996, there were no uninsured
balances.
F-14
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 4: Patent Rights and Other Assets and Deferred Costs
Patent rights $ 58,426
Organization costs 2,000
Deposits 7,682
Trademark 225
---------
68,333
Less accumulated amortization 16,828
---------
Total $ 51,505
========
Note 5: Deferred Costs
Deferred compensation relating to signing
bonuses to certain employees and consultant
of InfoPak, Inc. (see Note 2) $ 31,380
Deferred debt cost 19,009
--------
$ 50,389
========
Note 6: Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable $118,525
Accrued expenses
Interest 3,684
Salaries 111,449
Consulting fees 88,000
Customer deposits 26,400
--------
Total $348,058
========
Note 7: Long-Term Debt
As of June 30, 1996 long-term debt consisted of the following:
<TABLE>
<S> <C>
5% convertible debenture due August 1, 1997 $250,000(1)
10% secured notes due in January and February, 1998 75,000(2)
---------
$325,000
========
</TABLE>
The long-term debt is classified as long term with the entire
obligation being due during fiscal year ending in June 30,
1998.
(1) During July through September 30, 1996, $150,000 of
the debenture was converted to 2,063,186 shares of
the Company's common stock at an average per share
price of $.07. This debt is convertible into the
Company's common stock at 50% of the price of the
Company's stock on the day prior to conversion, but
at no time shall the conversion price be greater than
$.31 a share.
F-15
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 7: Long-Term Debt (Continued)
(2) As collateral for the secured notes, the Company has
given a security interest in all of the Company's
tangible and intangible assets, including all patents
and proprietary technology, which was evidenced by a
uniform commercial code of living on March 24, 1994.
On October 1, 1995, $1,757,000 of the outstanding secured
noteholders exercised their warrant to convert the secured
notes to Series B Convertible Preferred Stock except for the
above secured noteholders and a director who subsequently, in
February, 1996, exercised his right to convert a $150,000
secured note to Series B Convertible Preferred Stock. In
addition, the noteholders also agreed to convert $262,750 of
interest due on the 10% secured notes into Series C
Convertible Preferred Stock.
Note 8: Commitments and Contingencies
The Company leases its studio and production facilities in
Philadelphia, Pennsylvania under a five year operating lease
through February 28, 1999 at an annual rental of approximately
$60,000 through June, 1996 and adjusted on March 1, of each
year through 1998 by $1,371 each year thereafter. In addition,
the Company is responsible for its proportionate share of
excess operating expenses and real estate taxes. The Company
has a conditional option to terminate the lease 30 days prior
to the ground breaking date on the proposed new building site
adjacent to where the Company leases space.
Years Ending June 30, Annual Rental Amount
--------------------- --------------------
1997 $ 60,800
1998 62,200
1999 42,100
--------
$165,100
========
Total rent expense on all operating leases amounted to
approximately $83,000 and $56,600 for the years ended June 30,
1996 and 1995, respectively.
The Company has outstanding employment and consulting
contracts that expire through June 30, 1999 as follows:
Years Ending June 30, Amount
--------------------- ----------
1997 $ 534,000
1998 534,000
1999 185,000
----------
$1,253,000
==========
F-16
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 8: Commitments and Contingencies (Continued)
The Company's former principle distributor of its print
products refused to pay a certain sales invoice for goods
shipped to, accepted and paid for by the distributor's
customer. The Company had demanded payment and the
distributor has refused to pay the invoice for $213,522. The
Company filed for judgment on the $213,522 invoice together
with interest, costs and such other relief the court will
deem just and proper. The distributor has filed a
counterclaim. Management feels this matter will be resolved
favorably and will not have a material adverse effect on its
financial position.
As of June 30, 1996, the Company has provided an allowance for
possible bad debts for the full amount of this sales
transaction.
There are no other legal proceedings which the Company
believes will have a material adverse effect on its financial
position.
The Company has not declared dividends on Series A or B
Convertible Preferred Stock. The cumulative dividends in
arrears through June 30, 1996 was $245,800.
Note 9: Common Stock
In March, 1996, the stockholders approved an increase in the
authorized number of shares of the Company's common stock to
100,000,000 shares and the authorized number of shares of the
Company's Preferred Stock to 10,000,000 shares.
As of June 30, 1996, the Company had outstanding $250,000 of
convertible debt which is convertible into the Company's
common stock (see Note 7).
As of June 30, 1996, there are outstanding 14,736,610 of
non-public warrants to purchase the Company's common stock at
prices ranging from $.01 to $.75 with a weighted average price
of $.23 per share. The Company has also agreed to issue up to
3,700,000 warrants to purchase the Company's common stock, at
prices ranging from $.15 to $.20 with a weighted average price
of $.16 per share, to certain employees. The issuance of these
warrants is subject to the individuals meeting certain
predetermined performance goals, which if obtained would
improve the Company's DV3D(TM) print products and the sales of
such products.
As of June 30, 1996, there were 632,207 shares of Convertible
Preferred Stock outstanding which can be converted to
24,983,570 shares of common stock (see Note 10).
As of June 30, 1996, there are 7,500 Series B Warrants
outstanding to purchase Series B Convertible Preferred Stock
which can be converted into 750,000 shares of the Company's
common stock (see Note 7).
As of June 30, 1996, there was a $250,000 5% Convertible
Debenture which can be converted into a minimum of 1,612,903
shares of the Company's common stock depending upon the price
of the Company's common stock the day preceding the
conversion.
F-17
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 9: Common Stock (Continued)
The total number of shares of the Company's common stock that
would have been issuable upon conversion of the outstanding
debt, warrants and preferred stock equaled 45,783,083 shares
as of June 30, 1996, and would be in addition to the
26,711,657 shares of common stock outstanding as of June 30,
1996.
During the year ended June 30, 1996, 1,470,000 shares of the
Company's common stock was issued as a result of the
conversion of 36,750 shares of Series A Convertible Preferred
Stock valued at $367,500.
On September 5, 1995, the Company sold 3,000,000 shares of the
Company's common stock to third parties for $750,000 less
offering costs of $75,000 under a Regulation S offering.
In August, 1995 in connection with the sale of 3,000,000
shares of the Company's common stock to third parties, certain
stockholders, consisting mainly of officers and directors,
surrendered 3,215,000 of the Company's common stock in
exchange for 32,150 shares of Series S Preferred Stock valued
at $378,000. In March, 1996, after the stockholders approved
an increase in the number of authorized common stock shares,
29,000 shares of Series S Preferred Stock was converted back
to 2,900,000 shares of the Company's common stock valued at
$356,500.
The Company issued 3,495,239 shares of the Company's common
stock in connection with the conversion of $425,000 of
convertible debentures to common stock under a Regulation S
Securities Subchapter Agreement.
The Company issued 42,350 shares of the Company's common stock
to consultants for services valued at $11,011 ($.26 per
share).
Note 10: Preferred Stock
The Company has authorized 10,000,000 shares of $.001 par
value per share Preferred Stock, which has been allocated to
the following Series and is outstanding as of June 30, 1996,
as follows:
Allocated Outstanding
--------- -----------
Series A Preferred 100,000 40,500
Series B Preferred 200,000 190,700
Series C Preferred 1,000,000 23,420
Series P Preferred 600,000 374,437
Series S Preferred 50,000 3,150
--------- -------
Total Preferred Stock 1,950,000 632,207
========= =======
The Company's Series A Convertible 5% Preferred Stock ("Series
A Preferred"), 100,000 shares authorized, is convertible into
common stock at the rate of 40 shares of common stock for each
share of the Series A Preferred. Dividends from date of issue,
are payable from retained earnings, and have been accumulated
on June 30 each year, but have not been declared or paid (see
Note 8).
F-18
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 10: Preferred Stock (Continued)
The Company's Series B Convertible 8% Preferred Stock ("Series
B Preferred"), is convertible at the rate of 100 shares of
common stock for each share of Series B Preferred. Dividends
from date of issue are payable on June 30 from retained
earnings at the rate of 8% per annum and have not been
declared or paid (see Note 8).
The Company's Series C Convertible Preferred Stock ("Series C
Preferred"), is convertible at a rate of 10 shares of common
stock per share of Series C Preferred.
The Company's Series P Convertible Preferred Stock ("Series P
Preferred"), is convertible at a rate of 10 shares of common
stock for each share of Series P Preferred. The fair market
value of the 548,879 shares of Series P Preferred issued
relating to the merger, debt cancellation and signing bonuses
to certain employees and a consultant, was valued at
$1,372,198 ($2.50 per share) based upon the price at which the
Company was able to sell 3,000,000 shares of its common stock
on September 5, 1995 through a Regulation S offering which was
$.25 per share.
The Company's Series S Convertible Preferred Stock ("Series S
Preferred"), is convertible at the rate of 100 shares of
common stock for each share of Series S Preferred.
The Company's Series A Preferred and Series B Preferred were
issued for the purpose of increasing the capital or debt of
the Company. The Series C Preferred was issued to certain
holders of the Company's 10% Secured Notes in lieu of accrued
interest and also will be held for future investment purposes.
The Series S Preferred was issued to certain stockholders
consisting mainly of officers and directors of the Company in
exchange for such stockholders' shares of common stock. After
this exchange, common stock was sold on September 5, 1995 for
the purpose of raising additional capital.
The Series P Preferred was issued on September 12, 1995 to
InfoPak shareholders in exchange for (1) all of the
outstanding capital stock of InfoPak, (2) as signing bonuses
for certain employees and a consultant of InfoPak, and (3) to
satisfy InfoPak's outstanding debt obligations to certain
shareholders.
The 190,700 shares of Series B Preferred were issued to
holders of warrants to purchase such preferred stock. The
funding for the exercise of these warrants was the exchange of
$1,907,000 of principal amount of secured and unsecured notes.
The 26,275 shares of Series C Preferred were also issued in
exchange for $262,750 of interest due under the secured and
unsecured noteholders of 2,855 shares of Series C Preferred
Stock have subsequently converted their shares into the
Company's common stock.
F-19
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 11: Stock Option Plan and Equity Incentive Plan
The Company has adopted a stock option plan (the "Plan")
covering 500,000 shares of the Company's common stock $.001
par value, pursuant to which officers, directors, key
employees and consultants of the Company are eligible to
receive incentive, as well as non-qualified stock options and
Stock Appreciation Rights ("SAR's"). The Plan, which expires
in September 1998, will be administered by the Board of
Directors or a committee chosen therefrom. Incentive stock
options granted under the Plan are exercisable for a period of
up to 10 years from the date of grant at an exercise price,
which is not less than the fair market value of the common
stock on the date of the grant, except that the terms of an
incentive stock option granted under the Plan to a stockholder
owning more than 10% of the outstanding common stock may not
exceed five years and the exercise price of an incentive stock
option granted to such a stockholder may not be less than 110%
of the fair market value of common stock on the date of the
grant. Non-qualified stock options may be granted on terms
determined by the Board of Directors or a committee designated
by the Board of Directors. SAR's which give the holder the
privilege of surrendering such rights for the appreciation in
the Company's common stock between the time of grant and the
surrender, may be granted on any terms determined by the Board
of Directors or committee designated by the Board of
Directors. No SAR's have been granted.
A summary of transactions under this Plan is as follows:
<TABLE>
<CAPTION>
Option Price
Per Share, Total Option
Shares As Adjusted Price
------ ----------- ------------
<S> <C> <C> <C>
Options outstanding 161,000 $.48 $ 77,280
Cancelled (141,000) .48 (67,680)
--------- --------
Options outstanding June 30, 1996 and 1995 20,000 $ 9,600
========= ========
</TABLE>
The Company on June 13, 1996 has adopted the 1996 Equity
Incentive Plan (the "Plan") covering 10,000,000 shares of the
Company's common stock $.001 par value, pursuant to which
officers, directors, key employees and consultants of the
Company are eligible to receive incentive, as well as
non-qualified stock options, SAR's, and Restricted Stock and
Deferred Stock. The Plan, which expires in June, 2006, will be
administered by the Compensation Committee of the Board of
Directors. Incentive stock options granted under the Plan are
exercisable for a period of up to 10 years from the date of
grant at an exercise price, which is not less than the fair
market value of the common stock on the date of the grant,
except that the terms of an incentive stock option granted
under the Plan to a stockholder owning more than 10% of the
outstanding common stock may not exceed five years and the
exercise price of an incentive stock option granted to such a
stockholder may not be less than 110% of the fair market value
of common stock on the date of the grant. Non-qualified stock
options may be granted on terms determined by the Compensation
Committee of the Board of Directors. SAR's which give the
holder the privilege of surrendering such rights for the
appreciation in the Company's common stock between the time of
grant and the surrender, may be granted on any terms
determined by the Compensation Committee of the Board of
Directors. Restricted stock awards entitle the recipient to
acquire shares for no cash consideration or for consideration
determined by the Compensation Committee. The award may be
subject to restrictions, conditions and forfeiture as the
Committee may determine. Deferred stock award entitles
recipient to receive shares in the future. As of June 30,
1996, 42,350 shares of common stock has been issued under this
plan at $.26 per share. In addition, as of June 30, 1996, no
options or SAR's have been granted.
F-20
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 12: Income Taxes
The tax effects of significant items comprising the Company's
net deferred taxes as of June 30, 1996 were as follows:
Deferred tax assets:
Property $ (42,000)
Patents 8,000
Operating loss carryforwards 5,708,000
Valuation allowance (5,674,000)
----------
$ -
==========
The change in valuation allowance for the year ended June 30,
1996 was increased by approximately $640,000.
There was no provision for current income taxes for the years
ended June 30, 1996 and 1995.
The federal net operating loss carryforwards of approximately
$16,348,000 expire in varying amounts through 2011 and state
net operating loss carryforwards are available up to $500,000
per year commencing in fiscal 1995 and will be available up to
three years from date of loss.
The Company has had numerous transactions in its common stock.
Such transactions may have resulted in a change in the
Company's ownership, as defined in the Internal Revenue Code
Section 382. Such change may result in an annual limitation on
the amount of the Company's taxable income which may be offset
with its net operating loss carryforwards. The Company has not
evaluated the impact of Section 382, if any, on its ability to
utilize its net operating loss carryforwards in future years.
Note 13: Related Party Transactions
As of June 30, 1996, the Company's chief executive officer
owned approximately 2,128,550 shares of the common stock of
the Company and had 2,669,840 warrants to purchase the
Company's common stock and 15,000 shares of Series B Preferred
Stock at $10 per share, which is convertible into the
equivalent of 1,500,000 shares of common stock.
Note 14: Segment of Business Reporting
The operations of the Company are divided into the following
business segments for financial reporting purposes.
o Lithographically printed stereoscopic prints commonly
referred to as three-dimensional prints and
lithographically printed animation.
o Hardware and software information and audio playback
systems and method products and programs.
F-21
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
Note 14: Segment of Business Reporting (Continued)
There are no intersegment sales. There are no foreign sales
and one customer accounts for approximately 100% of the
lithographic sales and two customers account for approximately
81% of the hardware and software information and playback
systems.
Financial information by business segments is as follows:
<TABLE>
<CAPTION>
Hardware
and
Lithographic Software Consolidated
------------ -------- ------------
<S> <C> <C> <C>
Net customer sales $ 561,060 $ 522,837 $ 1,083,897
Operating loss (1,617,325) (323,625) (1,940,950)
Identifiable assets 1,199,582 209,337 1,408,919
Depreciation 59,632 27,859 87,491
Capital expenditures 37,644 2,716 40,360
</TABLE>
Note 15: Subsequent Events
The Company sold, through a private placement, 1,190,000
shares of the Company's common stock (restricted shares)
during August and September, 1996 for $119,000 ($.10 per
share).
During September and October, 1996, the Company received
$500,000 from the sale of its securities, $350,000 from the
sale of common stock at $.14 per share and $150,000 from a
sale of a convertible debenture with a maximum conversion
price of $.15 per share.
F-22
<PAGE>
INDEPEDENT AUDITORS' REPORT
---------------------------
To the Board of Directors and Stockholders
Dimensional Visions Group, Ltd. and Subsidiaries
Phoenix, Arizona
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of DIMENSIONAL VISIONS GROUP, LTD. AND
SUBSIDIARIES included in this annual report on Form 10-KSB and have issued our
report thereon dated September 30, 1996, except for Paragraph 2, Note 15 as to
which the date is October 10, 1996. Our audit was made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The schedules listed in the preceding index are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the
consolidated financial data required to be set forth in relation to the basic
consolidated financial statements taken as a whole.
GITOMER & BERENHOLZ, P.C.
Jenkintown, Pennsylvania
September 30, 1996
F-23
<PAGE>
Exhibit IV
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
SCHEDULE IV - PROPERTY AND EQUIPMENT(1)
<TABLE>
<CAPTION>
- ------------------------------ ---------------- ----------------- ---------------- ----------------- ----------------
Column A Column B Column C Column D Column E Column F
- ------------------------------ ---------------- ----------------- ---------------- ----------------- ----------------
Balance at Other
Beginning of Additions Changes - Balance at
Classification Period at Cost Retirements Add (Deduct) (2) End of Period
- ------------------------------ ---------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1996
- ------------------------
Equipment $1,628,028 $33,884 $ - $229,791 $1,891,703
Furniture and fixtures 134,938 6,476 - 1,994 143,408
Leasehold improvements 109,446 - - - 109,446
---------- ------- ----------- -------- ----------
$1,872,412 $40,360 $ - $231,785 $2,144,557
========== ======= =========== ======== ==========
Year Ended June 30, 1995
- ------------------------
Equipment $1,621,408 $11,522 $ 5,228 $ 326 $1,628,028
Furniture and fixtures 130,412 4,852 - (326) 134,938
Leasehold improvements 109,446 - - - 109,446
---------- ------- ----------- -------- ----------
$1,861,266 $16,374 $ 5,228 $ - $1,872,412
========== ======= =========== ======== ==========
</TABLE>
(1) Depreciation and amortization is computed by the straight-line method over
the estimated useful lives of the related assets as follows:
Equipment 5 - 7 years
Furniture and fixtures 5 years
Leasehold improvements Term of the initial operating lease (5 years)
(2) Represents equipment acquired through acquisition.
F-24
<PAGE>
Exhibit V
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
SCHEDULE V - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
- ------------------------------ ---------------- ----------------- ---------------- ----------------- ----------------
Column A Column B Column C Column D Column E Column F
- ------------------------------ ---------------- ----------------- ---------------- ----------------- ----------------
Balance at Other
Beginning of Additions Changes - Balance at
Classification Period at Cost Retirements Add (Deduct)(1) End of Period
- ------------------------------ ---------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1996
- ------------------------
Equipment $1,559,730 $ 81,417 $ - $126,830 $1,767,977
Furniture and fixtures 122,433 5,808 - 1,947 130,188
Leasehold improvements 108,886 266 - - 109,152
---------- -------- ------ -------- ----------
$1,791,049 $ 87,491 $ - $128,777 $2,007,317
========== ======== ====== ======== ==========
Year Ended June 30, 1995
- ------------------------
Equipment $1,426,715 $137,720 $4,705 $ - $1,559,730
Furniture and fixtures 110,632 11,801 - - 122,433
Leasehold improvements 107,916 970 - - 108,886
---------- -------- ------ -------- ----------
$1,645,263 $150,491 $4,705 $ - $1,791,049
========== ======== ====== ======== ==========
</TABLE>
(1) Represents accumulated depreciation acquired through acquisition.
F-25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, duly
authorized.
DIMENSIONAL VISIONS GROUP, LTD.
DATED: October 11, 1996 By: /s/ George S. Smith
-------------------
George S. Smith, Chairman, President and
Chief Executive Officer
In accordance with Section 13 or 15(d) of the Exchange Act, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ George S. Smith Chairman, President and Chief October 11, 1996
- -------------------- Executive Officer (Principal
George S. Smith Executive Officer and Principal
Financial Officer, and principal
accounting officer) and Director
/s/ Sean F. Lee Chief Operating Officer, Executive October 11, 1996
- ------------------- Vice President and Director
Sean F. Lee
/s/ Steven L. Flint Director October 11, 1996
- -------------------
Steven L. Flint
/s/ Hans J. Kaemmlein Director October 11, 1996
- ---------------------
Hans J. Kaemmlein
/s/ Robert A. Smith Director October 11, 1996
- -------------------
Robert A. Smith
/s/ Thomas A. Cadez Director October 11, 1996
- -------------------
Thomas A. Cadez
</TABLE>
(21)
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 203,073
<SECURITIES> 0
<RECEIVABLES> 32,608
<ALLOWANCES> 215,743
<INVENTORY> 89,458
<CURRENT-ASSETS> 357,586
<PP&E> 2,144,557
<DEPRECIATION> 2,007,317
<TOTAL-ASSETS> 1,408,919
<CURRENT-LIABILITIES> 348,058
<BONDS> 0
0
3,503,793
<COMMON> 26,712
<OTHER-SE> (2,794,644)
<TOTAL-LIABILITY-AND-EQUITY> 1,408,919
<SALES> 1,083,897
<TOTAL-REVENUES> 1,083,897
<CGS> 841,805
<TOTAL-COSTS> 2,183,042
<OTHER-EXPENSES> 94,697
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,446
<INCOME-PRETAX> (2,035,647)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,035,647)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
