<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
------------------------------------------------
[ ] 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 small business issuer as specified in its charter)
Delaware 23-2517953
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
718 Arch Street, Suite 202N, Philadelphia, PA 19106
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(Address of principal executive offices)
(215) 440-7791
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(Issuer's telephone number)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
------- ------
As of April 26, 1996, the number of shares of Common Stock issued and
outstanding was 21,048,308.
<PAGE>
Dimensional Visions Group, Ltd.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - March 31, 1996
and June 30, 1995 ........................................................... 1
Consolidated Condensed Statements of Operations - For the three and nine
months ended March 31, 1996 and 1995 ........................................ 2
Consolidated Condensed Statements of Cash Flows - For the nine
months ended March 31, 1996 and 1995 ........................................ 3
Notes to Consolidated Condensed Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 14
Item 2. Changes in Securities............................................. N/A
Item 3. Defaults Upon Senior Securities.................................. N/A
Item 4. Submission of Matters to a Vote of Security Holders............... 15
Item 5. Other Information................................................. N/A
Item 6. Exhibits and Reports on Form 8-K.................................. N/A
SIGNATURES................................................................... 15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
1996 1995
--------- -------
(Unaudited)
Current assets
Cash and cash equivalents $ 435,135 $ 227,972
Accounts receivable, trade 28,563 18,690
Inventory 112,932 26,453
Prepaid supplies and expenses 24,420 43,361
---------- ----------
Total current assets 601,051 316,476
---------- ----------
Equipment and leasehold improvements
Equipment 1,883,024 1,628,028
Furniture and fixtures 142,450 134,938
Leasehold improvements 109,446 109,446
---------- ----------
2,134,920 1,872,412
Accumulated depreciation and
amortization (2,043,657) (1,791,049)
---------- ----------
Net equipment and leasehold 91,263 81,363
improvement ---------- ----------
Other assets
Goodwill, net of accumulated
amortization of $111,165 914,969 -
Deferred Costs 81,176 668,161
Patent right, and other assets 50,342 53,398
---------- ----------
Total other assets 1,046,487 53,398
---------- ----------
Total assets $1,738,802 $ 451,237
========== ==========
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
--------- --------
(Unaudited)
<S> <C> <C>
Current liabilities
Notes payable $ 425,000 $ 50,000
Accounts payable, accrued expenses and other liabilities 496,614 404,489
---------- -----------
Total current liabilities 921,614 454,489
Secured notes 75,000 1,837,000
Accrued interest - 210,741
---------- -----------
Total liabilities 996,614 2,502,230
---------- -----------
Commitments and contingencies - -
Stockholders' equity (deficiency)
Preferred stock - $.001 par value per share, authorized -
10,000,000 shares; issued and outstanding - 818,899
shares at March 31, 1996, and 77,250 shares at June 30, 1995 819 77
Additional paid-in capital 4,061,579 772,423
---------- -----------
4,062,398 772,500
Common stock - $.001 par value per share, authorized -
100,000,000 shares issued and outstanding - 20,759,648
shares at March 31, 1996; 16,936,098 shares at June 30
1995 20,760 16,936
Additional paid-in capital 12,915,753 11,881,927
Deficit (16,256,724) (14,722,356)
---------- -----------
Total stockholders' equity (deficiency) 742,188 (2,050,993)
---------- -----------
Total liabilities and stockholders' equity $1,738,802 $ 451,237
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31 Nine Months Ended March 31,
--------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue $ 254,899 $ 67,940 $ 777,324 $ 130,585
Cost of Sales 256,615 97,611 642,900 179,200
---------- ---------- ----------- ----------
Gross profit (loss) (1,716) (29,671) 134,424 (48,615)
Operating expenses
Engineering and development costs 82,868 70,511 258,725 240,280
Marketing expenses 46,280 33,380 169,767 94,517
General and administrative expenses 342,004 130,755 1,079,507 333,669
---------- ---------- ----------- ----------
Total operating expenses 471,152 234,646 1,507,999 668,466
---------- ---------- ----------- ----------
Loss before other income (expenses) (472,868) (264,317) (1,373,575) (717,081)
---------- ---------- ----------- ----------
Other income (expenses)
Interest expense (6,371) (37,211) (61,455) (100,891)
Interest income 2,158 415 9,829 1,150
Gain on sale or abandonment of - - 2,000 2,411
equipment
Amoritization of Goodwill (51,307) - (111,165) -
---------- ---------- ----------- ----------
(55,520) (36,796) (160,791) (97,330)
---------- ---------- ----------- ----------
Net loss ($528,388) ($301,113) ($1,534,366) ($814,411)
---------- ---------- ----------- ----------
Net loss per share of common stock ($.03) ($.02) ($.09) ($.06)
---------- ---------- ----------- ----------
Weighted average shares of common 18,154,565 16,508,931 17,576,663 16,404,164
stock outstanding ========== ========== =========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
===========================
<S> <C> <C>
Cash flows from operating activities 1996 1995
---- ----
Net loss ($1,534,366) ($ 814,411)
Total adjustments to reconcile net loss to net cash
used in operating activities 246,040 335,948
---------- ---------
Net cash used in operating activities (1,288,326) (478,463)
---------- ---------
Cash flows from investing activities
Cash acquired in acquisition 275,632 -
Proceeds from sale of equipment 2,000 3,108
Repayment of advances to employees 11,000 (4,800)
Property and equipment payments (29,846) (13,766)
---------- ---------
Net cash provided by investing activities 258,786 (15,458)
---------- ---------
Cash flows from financing activities
Net proceeds from borrowing 523,500 417,000
Net proceeds from issuance of common stock 678,100 600
---------- ---------
Net cash provided by financing activities 1,201,600 417,600
---------- ---------
Net increase (decrease) in cash and cash equivalents 172,060 (76,321)
Cash and cash equivalents, beginning 262,975 118,034
---------- ---------
Cash and cash equivalents, ending $ 435,135 $ 41,713
========== =========
Supplemental disclosures of cash flow information:
Interest paid $ 9,726 $ -
========== =========
</TABLE>
3
<PAGE>
DIMENSIONAL VISIONS GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental disclosure of non-cash investing and financing activities:
1,100,000 shares of the Company's Common Stock was issued as a result of
the conversion of 27,500 shares of Series A Convertible Preferred Stock
valued at $275,000.
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. In March 1996, after the stockholders approved an
increase in the number of authorized Common Stock shares, 26,000 shares
of Series S Preferred Stock was converted back to Common Stock.
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 $442,769, (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 to certain shareholders of InfoPak. The Company accounted for
this transaction as a purchase and accordingly recorded goodwill of
$1,026,134.
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 $0.15 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 to the Company which were valued at $100,000 and expensed.
See notes to condensed consolidated financial statements.
4
<PAGE>
DIMENSIONAL VISIONS GROUP. LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
Note 1 Basis of Presentation of Interim Financial Statements
The interim financial statements are prepared pursuant to the
requirements for reporting on Form 10-QSB. The June 30, 1995 balance
sheet data were derived from audited financial statements but does not
include all disclosures required by generally accepted accounting
principles. The interim financial statements and notes thereto should be
read in conjunction with the financial statements and notes included in
the Company's annual report on Form 10-KSB/A-1 for the fiscal year ended
June 30, 1995. In the opinion of management, the interim financial
statements reflect all adjustments of a normal recurring nature
necessary for a fair statement of the results for the interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full
year ending June 30, 1996.
The Company has continued to incur losses since inception of $16,256,724
including losses for the nine months ended March 31, 1996 of $1,534,366.
Unless the Company can (1) successfully market its products, (2) obtain
such capital contributions or financing as may be required to sustain
its current operations, meet its debt obligations, and to fulfill its
sales and marketing activities, (3) achieve a level of sales adequate to
support the Company's cost structure, and (4) ultimately operate
profitably, the Company may be unable to continue as a going concern.
The Company has financed its operations through the sales of it
securities, loans and by certain employees deferring a portion of their
compensation, as well as through the sale of its products. In March
1996, the Company issued $425,000 of convertible debt which matures on
December 31, 1996 (see Note 4). If the debt is not converted to Common
Stock prior to its maturity date, the Company may not have sufficient
cash available to satisfy this obligation at maturity.
InfoPak, Inc. has had negative cash flow from its operation since the
date that it was acquired by the Company and has nearly depleted its
cash reserves. Due to the Company's limited cash position, no assurances
can be given that funds will be available to fund the future operations
of InfoPak.
Management's continuing plan to address these issues includes (a)
increased sales and marketing efforts of the Company's DV3D(TM) and
InfoPak products, (b) exercise cost controls to conserve cash and reduce
cost of goods, (c) raising additional funds through the issuance of
either debt or equity through private placements, (d) evaluating
possible additional merger, acquisition and/or joint venture
opportunities, and (e) evaluating possible divestitures and/or sales of
assets.
If operations are maintained at only the current level, the cash
anticipated to be generated by such operations and the funds currently
on deposit, may not be sufficient to meet the Company's cash needs
beyond the fiscal year ending June 30, 1996.
The consolidated financial statements have been prepared on the basis
that the Company is a going concern and do not reflect any adjustments
that might result from the outcome of the uncertainties described above.
5
<PAGE>
DIMENSIONAL VISIONS GROUP. LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
Note 2 Summary of Significant Accounting Policies
Description of Business
Dimensional Visions Group, Ltd. (the "Company") was incorporated in
Delaware on May 12, 1988. The Company produces and markets
lithographically printed stereoscopic prints commonly referred to as
three-dimensional prints. The prints may be viewed without the use of
special glasses or viewing apparatus.
On September 12, 1995, the Company, through a wholly-owned subsidiary,
acquired all the outstanding capital stock of InfoPak, Inc. ("InfoPak"),
located in Phoenix, Arizona. InfoPak manufactures and markets hardware
and software information and method products and programs. References
herein to the "Company" include Dimensional Visions Group, Ltd. and its
wholly-owned subsidiaries.
Consolidation Policy
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, InfoPak, Inc., DVG Plastics,
Inc., Digital Dimensions, Inc. and DV3D Images, Inc. The latter three
subsidiaries are inactive companies. All significant intercompany
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.
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 and Other Assets
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 expense in the period the determination is made to abandon them.
6
<PAGE>
DIMENSIONAL VISIONS GROUP. LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
Note 2 Summary of Significant Accounting Policies (Continued)
Goodwill
Goodwill of $1,026,134 was incurred by the Company as a result of its
acquisition of InfoPak on September 12, 1995 and is being amortized on a
straight-line basis over 5 years.
Engineering and Development Costs
The Company charges to Engineering and Development Costs all items of a
non-capital nature related to bringing a "significant" improvement to
its products. Such costs include salaries and expenses of employees and
consultants and the costs of conceptual formulation, design, testing of
the products, and creation of prototypes.
Income Taxes
Deferred income taxes reflect the net tax 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 carry forwards.
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.
Note 3 Acquisition
On September 12, 1995, the Company acquired all the outstanding common
stock of InfoPak in exchange for 500,000 shares of Series P Convertible
Preferred Stock (see Note 7) valued at $1,250,000. The fair value of the
InfoPak assets acquired was $442,769, 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 notes payable, including
related accrued interest, due to certain shareholders of InfoPak. The
Company has accounted for this transaction as a purchase and
accordingly, the acquisition resulted in the Company recording goodwill
of $1,026,134, 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 Stockvalued at $43,750
as a signing bonuses which are being amortized over the term of the
contracts.
7
<PAGE>
DIMENSIONAL VISIONS GROUP. LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
Note 4 Notes Payable
During March, 1996, the Company issued $425,000 of convertible
debentures which mature December 31, 1996. The cost associated with the
issuance of the debt was $46,500 and is being amortized over the life of
the debt. This debt is convertible into the Company's Common Stock at
50% of the price of the Company's Common Stock on the day prior to
conversion,but at no time shall such conversion price be greater than
$.81 per share.
Note 5 Long Term Debt
During the nine months ended March 31, 1996, holders of $1,907,000 of
the $1,982,000 of principal amount of the outstanding 10% Secured Notes
used their notes to exercise their Series B Warrants to purchase 190,700
shares of Series B Preferred stock. In addition these same holders
converted $257,310 of the interest due on the 10% Secured Notes into
25,731 shares of Series C Preferred stock.
As of March 31, 1996, the outstanding balance of the 10% Secured Notes
was $75,000. The Secured Notes mature $25,000 in January 1998 and
$50,000 in February 1998. In 1994, the Company gave as collateral for
its 10% Secured Notes, a security interest in all of the Company's
assets, tangible and intangible, including all patents and proprietary
technology.
Note 6 Common Stock
As of March 31, the Company had outstanding $425,000 of convertible debt
which is convertible into the Company's Common Stock (see Note 4 and 9).
As of March 31, 1996, there are outstanding 13,975,020 of non-public
warrants to purchase the Company's Common Stock at prices ranging from
$0.01 to $0.75 with a weighted average price of $0.22 per share. The
Company has also agreed to issue up to 3,720,000 warrants to purchase
the Company's Common Stock, at prices ranging from $0.15 to $1.00 with a
weighted average price of $0.17 per share, to certain employees and a
consultant of the Company. 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. In addition, the Company is also obligated to
issue warrants to the major distributor of its DV3D(TM) print products
(see Note 8).
As of March 31, 1996, there are 818,899 shares of Convertible Preferred
Stock outstanding which can be converted to 27,397,990 shares of common
stock (see note 7).
As of March 31, 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).
8
<PAGE>
DIMENSIONAL VISIONS GROUP. LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
Note 6 Common Stock (continued)
The total number of shares of the Company's Common Stock that would have
been issuable upon conversion of the above debt, warrants and preferred
stock equaled 47,015,064 Shares as of March 31, 1996, and would be in
addition to the 20,759,648 shares of Common Stock outstanding as of
March 31, 1996.
Note 7 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:
Outstanding
-----------
Allocated March 31, 1996 June 30, 1995
Series A Preferred 100,000 49,750 77,250
Series B Preferred 200,000 190,700 --
Series C Preferred 1,000,000 23,420 --
Series P Preferred 600,000 548,879 --
Series S Preferred 50,000 6,150 --
--------- ------- ------
Total Preferred Stock 1,950,000 818,899 77,250
========= ======= ======
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, have been accumulated on June 30 each year but have not been
declared as paid (See Note 8).
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.
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 Stock 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 $0.25 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.
9
<PAGE>
DIMENSIONAL VISIONS GROUP. LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
Note 7 Preferred Stock (continued)
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 (See Note 8) 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 of its 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 notes Holders
of 2,855 shares of Series C Preferred Stock have subsequently converted
their shares into the Company's Common Stock.
Note 8 Commitments
The Company leases its corporate offices, studio and lab facilities in
Philadelphia, Pennsylvania under a five year operating lease through
February 28, 1999 at an annual rental of approximately $59,000 through
February 1996 and adjusted on March 1, of each year through 1998 by
approximately $1,371 each year thereafter. In addition, the Company is
responsible for its proportionate share of excess operating expenses,
real estate taxes, and utility costs.
Year Ending June 30 Annual Rental Amount
1996 $15,100 (remaining rent for fiscal 1996)
1997 60,800
1998 62,200
1999 42,100
--------
$180,200
========
Rent expense was approximately $43,289 and $38,000 for the nine months
ended March 31, 1996 and 1995, respectively.
10
<PAGE>
DIMENSIONAL VISIONS GROUP. LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
Note 8 Commitments (continued)
The Company has not declared dividends on its Series A Preferred stock.
The dividends are payable based on the total cash paid for the Series A
Preferred Stock calculated at 5% per annum. The cumulative dividend in
arrears on the paid-in amount through June 30, 1995 is $151,750, and
through March 31, 1996, is $98,000 as a result of the conversion to
common stock of 27,500 shares of Series A Preferred stock during the
nine months ended March 31, 1996.
Dimensional Visions Group, Ltd. and its subsidiaries have outstanding
employment contracts that expire through May 1, 1999, as follows:
Year Ending June 30 Amount
1996 $142,250 (remaining for fiscal year 1996)
1997 569,000
1998 569,000
1999 245,500
--------
$1,525,750
==========
As of February 8, 1996, a consulting contract with a former affiliate of
the Company, which provided for among other things, assisting the
Company with arranging for additional capital and evaluating merger
opportunities was cancelled. An accrued consulting fee of $49,073 for
the period September, 1995, through February, 1996, is payable only out
of future positive cash flow of the Company. Under the consulting
contract, 250,000 warrants were issued during May 1995 and exercised
during June 1995. An additional 750,000 warrants were issued in
September 1995, exercisable over a five year period at $.15 per share.
The warrants issued in May 1995 were valued at $30,000 ($.12 per
warrant), and were recognized as additional consulting fees and have
been expensed.
The Company's major distributor of its DV3D(TM) product, under the terms
of its distribution agreement which expires on January 14, 1997, is to
receive up to 1,000,000 warrants to purchase the company's Common Stock
based on a percentage of the distributor's purchase price of DV3D(TM)
product. The warrants, with a two year term from their vesting date, are
to be priced at the market value of the Company's Common Stock on the
date of payment for the product. As of March 31, 1996, warrants for
38,721 shares, to be priced at $1.04, have been earned but not vested.
Note 9 Subsequent Events
On April 29, 1996, a holder of $50,000 of the Company's convertible debt
converted such debt into 266,667 shares of the Company's Common Stock.
The remaining convertible debt outstanding is $375,000 (see Note 4).
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended March 13, 1996 ("1996") Compared to the Three Months
Ended March 31, 1995 ("1995")
During 1996, the Company's net loss was ($528,338) compared to a net
loss of ($301,113) for 1995. The Company had revenues in 1996 of
$254,899 and gross loss of ($1,716), compared to revenues of $67,940 and
a gross loss of ($29,671) in 1995. The 1996 results include the
operations of InfoPak which was acquired on September 12, 1995. InfoPak
accounted for $162,239 of the Company's revenues and $49,976 of the
gross profit in 1996.
In the third quarter of its fiscal year ended June 30, 1995, the Company
delivered to a major producer of graphic arts consumer products, a
variety of DV3D(TM) print products for test marketing . The tests were
completed in the first quarter of fiscal year 1996, and the Company has
subsequently delivered through its major distributor three commercial
orders for these DV3D(TM) print products which totalled approximately
$331,500 and accounted for 96% of the DV3D(TM) print product sales since
September 1995. The third order which was delivered to the distributor
in February 1996 was below anticipated quality standards and required a
sales allowance of $134,100 which adversely affected revenues in 1996. A
fourth order totaling approximately $210,000 was delivered in April
1996. The Company anticipates further orders from this distributor,
which accounted for nearly all of the DV3D(TM) print product sales
during the past twenty-seven months.
The Company is experiencing resistance to its pricing for its DV3D(TM)
print products and is continuing its efforts lower the costs of
producing its product. The main areas for this effort are with the
Company's third party suppliers of lenticular material and printing for
its DV3D(TM) print products.
Operating expense of the Company was $471,152 for 1996 compared to
$234,646 for 1995. InfoPak's operating expenses were $163,632 for 1996.
Engineering and development, marketing and general administrative costs
for DVG were $28,486, $27,856, and $251,169, respectively for 1996,
compared to 70,511, $33,380, and $130,755 for 1995. The $42,025 decrease
in DVG's engineering and development cost resulted from the transition
of its products to the production stage during the first half of the
fiscal year. The $120,414 increase in DVG's general administrative
expense was primarily due to increases in consulting costs of $60,600,
legal fees $19,100, and $38,400 for stockholder communications.
Interest expense decreased $30,840 due to the conversion of $1,752,000
of 10% Secured Notes to preferred stock, while interest income increased
with the short-term investments of the remaining proceeds of the
$675,000 net sale of common stock on September 5,1995. Amortization of
the goodwill incurred in the acquisition of InfoPak was $51,307 for
1996.
InfoPak currently produces and markets the InfoPak System(TM) to the
residential real estate agent marketplace as the InfoPak Portable
MLS(TM). The Portable MLS(TM) is currently the only InfoPak product
being sold. The Portable MLS(TM) product is marketed through four
distributors. The MLS product has not generated the level of revenues as
expected by InfoPak, nor does InfoPak have any back orders for its
product at this time. InfoPak's revenues during 1996 totaled $162,239
compared to $403,750 in 1995 and gross profits equaled $49,976 for 1996
versus $160,156 for 1995.
12
<PAGE>
In October 1995, InfoPak entered into a Letter of Intent with a division
of Spectrum Media, Inc. to form a joint venture. Negotiations were
discontinued during 1996.
Nine Months Ended March 31, 1996 ("1996") Compared to the Nine Months
Ended March 31, 1995 ("1995")
During 1996, the Company's net loss was ($1,534,366) compared to a net
loss of ($814,411) for 1995. The Company had revenues in 1996 of
$777,324 and gross profit of $134,424, compared to revenues of $130,585
and a gross loss of ($48,615) in 1995. The 1996 results include the
operations of InfoPak which was acquired on September 12, 1995.
Operating expense of the Company was $1,507,999 for 1996, compared to
$668,466 for 1995. InfoPak's operating expenses were $163,632 for 1996.
Engineering and development, marketing and general administrative costs
for DVG were $144,641, $101,835, and $858,281 respectively for 1996,
compared to $240,280, $94,517, and $333,669 for 1995. The $95,639
reduction in development resulted primarily from the completion of the
initial development of the DV3D(TM) print product. The Company
anticipates continued efforts to refine and improve its DV3D(TM)
product. The $524,612 approximate increase in general administrative
cost was due primarily to consulting expenses of $291,400 (including
$100,000 value of warrants issued to a affiliate), additional increased
legal fees of $49,300, accounting costs of $45,800, audit fees of
$24,600, compensation costs of $54,700, and $53,400 for stockholder
communications.
Interest expense decreased $39,436 due to the conversion on October 1,
1995 of $1,752,000 of 10% Secured Notes to preferred stock, while
interest income increased primarily due to the short-term investments of
the proceeds of the $675,000 net sale of common stock on September
5,1995. Amortization of the goodwill incurred in the acquisition of
InfoPak was $111,165 for 1996.
Liquidity and Capital Resources
On March 31, 1996, the Company had a working capital deficit of
($320,563), compared to a working capital deficit of ($138,013) on June
30, 1995. During the three month period ended March 31, 1996, the
Company borrowed $425,000 of convertible debentures (net proceeds after
costs was $378,500) which bear interest at 5% per annum and mature
December 31, 1996. The debentures are convertible into shares of the
Company's common stock at the lower of (a) 50% of the Market Price (as
defined in the debenture) of the Company's Common Stock on the day prior
to conversion or (b) $.81. All of such securities were sold outside the
United States, and must be held for periods of not less than 40 days
before they may be converted. If the holders exercise their right to
convert the debentures into shares of the Company's Common Stock, and
sell such shares, such sales could have an adverse effect on the price
of the Company's Common Stock,. In the event the conversion of debt does
not occur, the Company may not have sufficient cash available to satisfy
this obligation at maturity.
Also during the quarter ended March 31, 1996 the holder of $150,000
principal amount of the Company's 8% notes converted such notes into the
Company's 8% Series B Convertible Preferred and also converted $28,550
of interest due on such notes into Series P Convertible Preferred.
13
<PAGE>
Operating revenues of the Company for the three months ended March 31,
1996 totaled $254,899 (after a sales allowance of $134,100 due to a
production problem with the DV3D(TM) product), compared to $309,389 for
the three months ended December 31, 1995, $213,036 for the three months
ended September 30, 1995, and $67,940 for the three months ended March
31, 1995.
InfoPak has had negative cash flow from its operation since its
acqusition by the Company and has nearly depleted its cash reserves. Due
to the Company's limited cash position, no assurances can be given that
funds will be available to fund the future operations of InfoPak.
The Company's current financial position continues to be precarious. The
Company will need additional funding in order to maintain current
operations, extend its product lines, and to enter into any merger,
acquisition or joint venture. The Company has been funding its
operations by selling its securities in private placements, short-term
borrowing, accruing compensation to certain employees, and sale of its
products. The Company continues to discuss with third parties the
raising of additional funds. The amount of third party funding, if any,
will depend to some extent on the Company's revenues and cash flow from
operations. No assurance can be given that the Company will be able to
obtain the additional funds necessary to maintain its existing
operations. In the event the Company is not able to secure sufficient
funds on a timely basis necessary to maintain its current operations, it
may cease all or part of its existing operations or may seek protection
under the federal bankruptcy laws.
Moreover, the Company has not been able to raise additional capital
except on a very short term basis, in limited amounts, and at
significant discounts to the trading price of its Common Stock. During
its 1996 fiscal year, the Company has succeeded in raising an aggregate
of $1,201,600 of capital (net of the cost of issuance) under the
foregoing limitations, of which $1,053,500 was raised pursuant to
Regulation S promulgated under the Securities Act of 1993 as amended.
The Company believes its ability to continue as a going concern depends
upon its ability to raise capital on more favorable terms than has been
available to it during the past nine months.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
In December 1995, the Company's wholly-owned subsidiary, InfoPak, Inc.,
was named as a defendant in a legal proceeding.
The action was brought by First Portland Corporation in the Superior
Court of Arizona, Maricopa County. The action sought a temporary
restraining order to restrain InfoPak, Inc. from distributing its
products in markets where the plaintiff claimed to maintain distribution
rights pursuant to certain agreements. The order was granted ex parte on
December 7, 1995 and lifted on December 11, 1995. A preliminary
injunction hearing was scheduled for April, 1996.
On February 8, 1996, the parties reached an out-of-court settlement of
their differences and entered into a new distribution agreement.
14
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
On March 20, 1996, the Company held its Annual Meeting at which
46,558,448 votes were entitled to be cast. The following directors were
elected:
Votes For Against
--------- -------
Steven M. Peck 38,357,093 28,925
George S. Smith 38,357,093 28,925
Sean F. Lee 38,218,513 167,505
Gitomer & Berenholz P.C. were approved as independent accounts and
auditors for the Company as follows:
Votes For: 38,331,568
Votes Against: 18,600
Abstained: 35,850
The Company's Certificate of Incorporation was amended to increase the
authorized Common Stock of the Company from 20,000,000 to 100,000,000
shares and authorized Preferred Stock of the Company from 2,000,000 to
10,000,000 shares as follows:
Votes For: 31,762,669
Votes Against: 193,835
Abstained: 64,600
No other matters were submitted for a vote.
Signatures
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIMENSIONAL VISIONS GROUP, LTD.
Date: May 10, 1996 /s/ Steven M. Peck
---------------------------------
Steven M. Peck,
President, Chief Executive Officer, and Chief
Financial Officer
15
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