SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
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 INCORPORATED
--------------------------------------------------------
(Name of Small Business Issuer as specific in its Charter)
Delaware 23-2517953
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2301 W. Dunlap Avenue, Suite 207, Phoenix, Arizona 85021
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(Address of Principal Executive Offices) (Zip Code)
Issuer'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, $.001 par value
-----------------------------
(Title of Class)
Indicate by check mark whether the issuer (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 [X] No [ ]
For the fiscal year ended June 30, 2000, the Company's revenue was
$1,008,862.
As of September 8, 2000, the number of shares of Common Stock outstanding
was 9,459,913. The aggregate market value of the Company's Common Stock held by
non-affiliates of the registrant as of September 8, 2000, was approximately
$3,547,467 (based upon 9,459,913 shares at $.375 per share).
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in Part III, Item 13(a)
herein: Registration Statement on Form SB-2 dated June 19, 2000, as amended
(Registration No. 333-30368) and the Form 10-KSB for the year ended June 30,
2000, filed with the Commission on September 28, 2000.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Dimensional Visions creates and delivers Living Image(TM) Solutions for
products, packaging and marketing communications.
Living Image(TM) Solutions are multi-dimensional (commonly known as "3-D")
and/or animated visual effects. These effects may be produced in varying sizes
to specified customer applications for companies who want to differentiate their
products from the competition. The visual effects are created by viewing
multiple images through a series of lenses incorporated into a plastic sheet
called lenticular. These lenses work as a viewer which self adjusts to whatever
distance the viewer is from the image. Viewed in one direction, the lenses allow
the individual to see multiple views of an image simultaneously. These multiple
views are seen as being in three dimensions. Alternatively, viewed in the other
direction, the lenses restrict the view to a particular image that changes as
the piece is moved, thus creating an animation effect (i.e., the picture appears
to be moving).
Our objective is to become a dominant marketer, developer and producer of the
Living Image(TM) in the United States and internationally.
Our Living Image(TM) Solutions offer multi-dimensional and/or animated images
for the promotion marketing industry, advertising and graphic design industry
and original equipment manufacturers throughout the United States.
InfoPak, Inc. is our one active subsidiary company. InfoPak manufactures and
markets a hardware/software packaged product line called the
"InfoPakSystem(TM)." This system was designed to handle substantial offline
information and databases that may require frequent updating.
We have decided to focus all of our resources on our Living Image(TM) product
line. During Fiscal Year 1999, we retained Chapman Associates, an investment
banking firm, to assist us in the sale of our InfoPak, Inc. subsidiary. To date,
we have not found a buyer. We will continue to support the operations of InfoPak
until it is sold or our Board of Directors decides to discontinue its
operations.
Dimensional Visions office and principal place of business is located at 2301
West Dunlap Avenue, Suite 207, Phoenix, Arizona 85021, and its telephone number
is (602) 997-1990.
COMPANY HISTORY
FISCAL YEARS 1988-1994
In 1988 Dimensional Visions Group, Ltd. (Bulletin Board: DVGL) was incorporated
in the state of Delaware. Dimensional Visions was headquartered in Philadelphia,
Pennsylvania. At that time, Dimensional Visions created its three-dimensional
effects by building model sets and photographing these sets using a robotic
controlled camera. These photographed images were then prepared for lithographic
printing. The process utilized during this timeframe was very expensive and
extremely difficult to consistently reproduce quality images. Throughout this
period Dimensional Visions tried unsuccessfully to perfect the robotic camera
process.
FISCAL YEARS 1995-1997
In 1995 Dimensional Visions acquired InfoPak, Inc. of Phoenix, Arizona
("InfoPak") which is currently our wholly owned subsidiary. InfoPak manufactures
and markets a hardware/software package called the "InfoPakSystem(TM)". This
system takes existing databases and prepares them for use on a palm-top computer
manufactured by InfoPak. It is particularly useful to individuals who need
access to information while away from a computer terminal. Therefore, it is
marketed to mobile business professionals in the automobile appraisal and
real-estate businesses. Automobile appraisal guides are available on the
palm-top unit for access at automobile auctions or at car dealership lots.
Multiple listing data is similarly available for real estate agents for field
access to the home listings.
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From 1995 to 1997, Dimensional Visions utilized the software development
resources of InfoPak to develop the patent-pending software and systematic
digital process for its Living Image(TM) Solutions.
FISCAL YEARS 1998-2000
In January 1998 we established our current headquarters in Phoenix, Arizona.
Under the leadership of a new executive management team, Dimensional Visions was
completely restructured including changing our corporate name to Dimensional
Visions Incorporated and changing our stock trading symbol from DVGL to DVUI. At
the end of 1997, the Company needed to complete private placements of debt and
equity to continue operations. As a prerequisite, our investment banking firm,
Capital West Investment Group, required the Company to replace the upper level
management and effect a 1 for 25 reverse stock split.
During this timeframe we sold all of the original robotic photographic equipment
to concentrate on the new Living Image(TM) (utilizing very high-end Intel based
graphic design computers). Our management team believes that the new process is
much more cost effective, reproducable, and has a shorter production cycle than
the photographic process formerly used by the Company. We also believe that it
better meets the demands of today's market which requires quick turn around of
products from inception to delivery.
STRATEGY
MARKET & PENETRATION
Multi-dimensional and/or animated images are being utilized today by Dimensional
Visions' clients. The images are used because they combine depth and movement to
attract the consumer's attention and potentially increase their sales.
Living Image(TM) solutions have and will be (a) integrated onto products (for
example: affixed to yearbooks, children's portfolio cover's, etc), (b)
integrated onto product packaging (for example: affixed to cereal boxes, CD
packages, etc), and (c) integrated onto marketing communications for products
and services (for example: affixed to annual reports, etc). We define the market
for our Living Image(TM) as the following major markets in the United States:
* Specially selected Original Equipment Manufacturers
* Specially selected Promotional Marketing Firms
* Specially selected Advertising & Graphics Design Firms (less newspaper,
radio and TV)
Dimensional Visions believes that the market for Living Image(TM) is in its
infancy particularly with the advent of new high-end Intel based graphic design
computers and improved lenticular plastic extrusion capabilities. With these
advances, coupled with the best-integrated software methodology and marketing
strategy, we believe Dimensional Visions can be a market leader.
Dimensional Visions estimates that the market universe for its Living Image(TM)
is as follows:
* ORIGINAL EQUIPMENT MANUFACTURERS: Our revenues for the fiscal year ended
June 30, 1999, from the original manufacturers were approximately 52% of
our total revenue.
* PROMOTION MARKETING INDUSTRY: According to PROMO MAGAZINE article titled
The 1998 Annual Report, the estimated 1997 revenue for the promotion
marketing industry was $79.5 billion. This article can be found archived on
their website at WWW.PROMOMAGAZINE.COM. Dimensional Visions believes that
the Premium/Incentives, Point of Purchase, Specialty Printing, and Agencies
Net Revenues categories, which account for over $43.7 billion, are
potential users of the Living Image(TM) Solutions. Our revenues for the
fiscal year ended June 30, 1999 from this market were approximately 48%.
* ADVERTISING INDUSTRY: According to ADVERTISING AGE article on May 18, 1998,
the 1997 advertising revenue in the U.S. totaled over $187.6 billion. The
article, titled 1997 U.S. ADVERTISING VOLUME (COEN/MCCANN-ERICKSON), can be
found on their website at WWW.ADAGE.COM. We believe that newspapers,
magazines, direct mail, business papers, and miscellaneous other
advertising methods are potential users of the Living Image(TM) Solutions.
These categories make up over $116.4 billion or 62% of total advertising
revenues.
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PRODUCTION
Dimensional Visions controls or supervises all phases of the production of its
Living Image(TM) products from the image development and computerized
enhancement phases through the color separation and printing phases. Images are
provided to us by our clients in many formats including digitally in graphic
file formats and photographically in pictures or transparencies. Photographic
images are scanned into the computer to be modified and enhanced. Through a
proprietary process, several images are composited together to generate a final
image that will appear as a three-dimensional and/or animation image when viewed
through a lenticular material. "Lenticular" 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 or hoods. The digital files are
forwarded to Travel Tags, our primary printer, or other commercial printer,
where, through the lithographic process, the images are printed on a polymer
based lenticular material which focuses the multi-dimensional or animation
images. Printing is done under the supervision of Dimensional Visions. The
lenticular material is supplied by producers in the petrochemical and plastic
fabricating industries directly to our printer. Dimensional Visions has no
long-term contracts with its printers.
COMPETITION
Other processes currently are available which allow a viewer to perceive an
image in three-dimensions, including those which employ stereoscopic glasses and
viewing hoods and other processes, and holograms and other three-dimensional
image systems which do not require the use of viewing apparatus. Dimensional
Visions is aware of at least two companies, Optigraphics, Inc. and National
Graphics, Inc., which compete with our products. Our products may be 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 promotion contexts. Color lenticular images
are less expensive than other forms of three-dimensional prints.
PATENTS, TRADEMARKS AND PROPRIETARY PROTECTION
The Company filed a patent application on February 15, 1999 for its Living
Image(TM) software and print system. The Company believes that the patent will
issue within two years.
Dimensional Visions has received trademark registration of DV3D(R) and has
submitted a trademark application for Animotion(TM) and Living Image(TM) which
we believe will issue within the next 24 months as well.
Dimensional Visions enters into confidentiality agreements with all persons and
entities who or which may have access to our technology. However, no assurance
can be given that such agreements, the patents, or any additional patents that
may be issued to Dimensional Visions will prevent third parties from developing
similar or competitive technology. There can be no assurance that the patents
will provide us 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 we will have sufficient resources to
either institute or defend any action, suit or other proceeding by or against
our Company with respect to any claimed infringement of patent or other
proprietary rights. In the event that we 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 our operations. Furthermore, there can be no
assurance that our own technology will not infringe patent or other rights owned
by others or licenses to which may not be available to us.
EMPLOYEES
As of June 30, 2000, Dimensional Visions had twelve employees, including three
in management, one of whom is involved in manufacturing and research and
development, one in marketing and sales, and one in operations and finance.
There are three employees engaged in administrative and clerical functions, two
in sales, and four in production. Dimensional Visions is not a party to any
collective bargaining agreements. Dimensional Visions considers its relations
with employees to be good.
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SELECTED CONSOLIDATED 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, included elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 2000 June 30, 1999 June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operation revenue $ 1,008,862 $ 741,901 $ 609,392 $ 551,517 $ 1,083,897
Net loss $(1,021,144) $(1,465,812) $(421,659) $(2,162,134) $(2,035,647)
Net loss per share of common stock $ (.18) $ (.39) $ (.14) $ (1.14) $ (3.34)
Balance Sheet Data:
Working capital (deficit) $ 205,284 $ (603,946) $(235,920) $ (107,952) $ 9,528
Total assets $ 885,033 $ 530,973 $ 920,841 $ 529,520 $ 1,408,919
Total liabilities $ 519,112 $ 1,118,740 $ 713,539 $ 613,947 $ 673,058
Stockholders' equity (deficiency) $ 365,921 $ (721,555) $ 207,302 $ (84,427) $ 735,861
</TABLE>
ITEM 2. DESCRIPTION OF PROPERTY.
We lease approximately 4,364 square feet of office space at 2301 W. Dunlap
Avenue, Suites 207 and 201 in Phoenix, Arizona. This location serves as our
principal executive offices and our current design and production facilities.
The lease covering this property terminates on December 31, 2000. The total
lease payments for the first six months of fiscal year 2001 will be
approximately $37,000. The lease also requires us to pay all taxes and
insurance.
ITEM 3. LEGAL PROCEEDINGS.
In June 1999, Electronic Pricing Guides, Inc., an Arizona corporation ("EPG"),
filed a claim against InfoPak and Dimensional Visions, Inc. at the American
Arbitration Association, Dallas, Texas branch, arbitration file number 76 Y 181
00146 99. EPG claimed breach of contract and InfoPak, Inc. filed a counter-claim
on September 18, 1999 also seeking breach of contract and breach of promissory
note. EPG sought money damages for lost business in an undiscerned amount.
InfoPak sought money damages in the amount of $85,500 plus interest from March
1, 1998 and $8,000. Arbitration was scheduled to take place April 24-26, 2000.
However, EPG, Inc. failed to make the necessary deposits, so the hearings were
suspended indefinitely. The matter was closed by the American Arbitration
Association on July 25, 2000. This matter is no longer pending and no further
action has been threatened.
In July 2000, the Company settled a dispute with RCG Capital Markets Group, Inc.
for payment by the Company of $4,583 and 50,000 stock warrants with an exercise
price of $0.843 per share.
In August 2000, Richman Group, an Ohio corporation, filed a claim against
Dimensional Visions at the American Arbitration Association, Dallas, Texas, with
an arbitration venue of Phoenix, Arizona. Richman group claims damages resulting
from a breach of contract. Richman seeks damages in the amount of $50,000.
Although no arbitration date has been set, the Company expects that it will be
set prior to December 31, 2000.
To the best knowledge of our management, there are no other material litigation
matters pending or threatened against us.
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 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock has been quoted on the OTC Bulletin Board (the
"Bulletin Board") under the symbol "DVUI" since January 12, 1998. Prior to
January 12, 1998, the Company's Common Stock traded under the symbol "DVGL." The
following table sets forth the quarterly high and low bid prices of the
Company's Common Stock for the periods indicated, after adjusting such prices
for the Company's 1-for-25 reverse Common Stock split which was effective
January 15, 1998. Bid quotations represent interdealer prices without adjustment
for retail markup, markdown and/or commissions and may not necessarily represent
actual transactions.
High Low
---- ---
FISCAL 1999
First Quarter................................ 1 11/32 27/64
Second Quarter............................... 21/32 1/4
Third Quarter................................ 7/16 3/16
Fourth Quarter............................... 27/32 3/16
FISCAL 2000
First Quarter................................ 2 3/16 3/8
Second Quarter............................... 1 23/32 27/32
Third Quarter................................ 2 3/32 13/16
Fourth Quarter............................... 2 9/32 3/8
FISCAL 2001
First Quarter (through September 8, 2000).... 17/32 17/64
HOLDERS
As of September 8, 2000, the number of stockholders of record was 430, not
including beneficial owners whose shares are held by banks, brokers and other
nominees. The Company estimates that it has approximately 3,000 stockholders in
total.
DIVIDENDS
The Company has paid no dividends on its Common Stock 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 Series
B Convertible Preferred stock, a 8% annual dividend is due and owing. As of June
30, 2000, the Company has not declared dividends on Series A or B preferred
stock. The unpaid cumulative dividends totaled approximately $74,225. See Note
10 of Notes to Consolidated Financial Statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FISCAL YEARS 1998 AND 1999
RESULTS OF OPERATIONS
The net loss for the fiscal year ended June 30, 1999, was $1,465,812 compared
with a net loss of $421,659 for the fiscal year ended June 30, 1998. The
substantial increase of the net loss is the result of the gain recognized from
the sale of the product line of $410,000 for the fiscal year ended June 30,
1998, and the subsequent recognition of bad debt totaling $402,006 for the
fiscal year ended June 30, 1999. Interest expense and administrative expenses
were also significantly higher for the fiscal year ended June 30, 1999.
Revenue for the fiscal year ended June 30, 1999, was $741,901 compared to
revenue of $609,392 for the fiscal year ended June 30, 1998. Approximately
$614,000 of total revenue for the fiscal year ended June 30, 1999, was from
print products compared to $323,000 of total revenue for the fiscal year ended
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June 30, 1998. The Company is continuing to increase the percentage of print
revenue as a part of total revenue. Sales of products and licensing fees for
InfoPak, Inc. are continuing to diminish.
On March 1, 1998, the Company sold computer hardware through its InfoPak, Inc.
subsidiary to a customer for $100,000 and agreed to accept a note for $90,000
with interest at 10% commencing on September 1, 1998. The Company has not been
able to collect the required monthly payments due on this note. The customer has
filed for an arbitration hearing on the basis that the Company failed to provide
data to support their customer base (see Note 3 to the Consolidated Financial
Statements). The Company has filed a counter-claim for full payment of the note.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had a working capital deficiency of $603,946
compared with a working capital deficiency of $235,920 as of June 30, 1998. The
decrease in working capital is largely the result of increased short-term
borrowings used as operating funds, the write-off of certain bad debts (see Note
3 to the Consolidated Financial Statements), and the reduction of accounts
receivable. During the period ended June 30, 1999, the Company raised a total of
$720,000 before debt issuance costs of approximately $57,450 through the sale of
long and short term debentures.
As of June 30, 1999, the Company's financial position is still precarious. The
Company needs funding in order to maintain current operations. The Company is
continuing to fund its operations by selling its securities in private
placements, through long-term and short-term borrowing, and from the sale of its
products.
The Company's independent auditors report contained an explanatory paragraph
regarding the ability of the Company to continue as a going concern.
FISCAL YEARS 1999 AND 2000
RESULTS OF OPERATIONS
The net loss for the fiscal year ended June 30, 2000, was $1,021,145 compared
with a net loss of $1,465,812 for the fiscal year ended June 30, 1999. The gross
margin increased from $179, 190, representing 24% of fiscal year 1999 operating
revenue, to $346,841, representing 34% of fiscal year 2000 operating revenue.
Approximately $175,000 of the increase in general and administrative expenses
was the result of the amortization of one time consulting contracts paid through
the issuance of the Company's common stock. Other general and administrative
expense categories that increased significantly were salary, lease expense and
stock/proxy related expenses. Marketing expenses decreased from $301,630 in
fiscal year 1999, to $110,270 in fiscal year 2000. Marketing salary and
commissions decreased by approximately $110,000 and travel and entertainment by
$13,000. Management believes that marketing expenses will increase in the fiscal
year 2001, as a result of hiring of new sales staff and the beginning of a
nationwide marketing campaign. Of the $173,878 of interest expense for fiscal
year 2000, approximately $49,572 was paid with the Company's common stock on
June 19, 2000. An additional $116,215 was the result of the amortization of the
discounted value of the Company's long and short-term debentures which were
simultaneously converted with their associated interest.
Revenue for the fiscal year ended June 30, 2000, was $1,008,862 compared to
revenue of $741,901 for the fiscal year ended June 30, 1999. Approximately
$980,000 or 97% of total revenue for the fiscal year ended June 30, 2000, was
from print products compared to $614,000 or 83% of total revenue for the fiscal
year ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had a working capital of $205,284 compared with
a working capital deficiency of $603,946 as of June 30, 1999. The increase in
working capital is largely attributable to the increase in cash of approximately
$258,000, an increase in account receivable of $270,000, and the conversion of
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short term debt and accrued interest into shares of the Company's common stock.
During the period ended June 30, 2000, the Company raised a total of $1,050,000
before expenses of approximately $94,500 through the sale its Series D and
Series E Preferred Stock.
The Company extended an offer to its debenture holders and certain creditors to
convert their debt to equity in the Company. The offer, which expired on October
15, 1999, permitted the conversion of debt into shares of the Company's common
stock at prices ranging from $.25 to $.375 per share. Interest on the debentures
accrued at 12% per annum through January 31, 2000. Additionally, certain
accounts payable were offered the opportunity to convert their receivables into
shares of Dimensional Visions' common stock at $.375 per share. On June 19,
2000, following the effective date of the registration statement, the entire
outstanding balance of $720,000 of debentures and $60,748 of accounts payable
were converted into shares of the Company's common stock. A total of 2,601,021
shares were issued to convert the accounts payable and the debentures including
accrued interest.
Dimensional Visions plans to become profitable through increased sales of its
Living Image(TM) products while maintaining current or higher gross margins. The
Company has a strong relationship with its printer which includes preferential
treatment, the ability to quickly produce products requested by customers, and
the resources to significantly expand production without a commensurate increase
in expenses. Our current customers are reordering products on a regular basis
which reduces our cost of sales. For the fiscal year ended June 30, 1999, eight
customers ordered additional products compared to ten customers for the fiscal
year ended June 30, 2000. These customers are also increasing their order
quantities indicating a growing acceptance of our 3D/animated products in the
market place. The Company's three largest customers ordered $64,940, $31,844 and
$175,574 worth of products in the fiscal year 1999 compared to $119,571,
$159,748 and $538,653 for the fiscal year ended June 30, 2000.
The Company's independent auditors report contained an explanatory paragraph
regarding the ability of the Company to continue as a going concern.
EVENTS SUBSEQUENT TO JUNE 30, 2000
On September 5, 2000, the Company entered into a Letter of Agreement with an
investment banking firm to establish a $20 million equity line. This agreement
is subject to the Company filing an effective registration statement and will
end 36 months from the effective registration date. The Company shall have the
right at its sole discretion to put common stock to the investment banking firm,
subject to certain amount limitations and conditions based upon trading volume
of the Company.
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements required to be filed pursuant to this Item
7 begin on page F-1 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company terminated Gitomer & Berenholz, P.C., Huntingdon Valley,
Pennsylvania, as its principal accountant as of July 13, 2000. The principal
accountant's report on the financial statements of the Registrant contained no
adverse opinion or a disclaimer of opinion, nor was qualified nor modified as to
uncertainty, audit scope, or accounting principles. The termination of Gitomer &
Berenholz, P.C. was approved by the Board of Directors.
During the Company's two most recent fiscal years and any subsequent interim
period preceding such registration, declination, or dismissal, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
There is nothing to report under Item 304(a)(1)(v)(A) through (D).
Upon the disengagement of Gitomer & Berenholz, P.C., the Company engaged the
firm of Kopple & Gottlieb, LLP, 420 Old York Road, Jenkintown, PA 19046, as its
new accounting firm.
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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:
Name Age Position
---- --- --------
John D. McPhilimy 57 Director, Chairman of the Board of Directors
and Chief Executive Officer
Roy D. Pringle 32 Vice President and Director
Bruce D. Sandig 41 Senior Vice President and Director
Susan A. Gunther 50 Director
MR. JOHN MCPHILIMY was appointed as a Director, President, and Chief Executive
Officer of the Company in November 1997. In January 1998, he was appointed
Chairman of the Board. From January 1995 until November 1997, Mr. McPhilimy
served as President of Selah Information Systems, Inc., Mesa, Arizona, a company
involved in information systems. From March 1992 to December 1995, Mr. McPhilimy
served as President of Travel Teller, Inc. Mr. McPhilimy has over 30 years of
executive and marketing experience in high-technology industries such as
aerospace, air transportation, and electronic telecommunication networks with
Bell Helicopter Textron, Aerospatiale, Executive Jet Aviation, Travel Teller
Inc., Marketing Works, and Selah Information Systems. Over the last 15 years he
has been responsible for implementing marketing strategies of NetJets and Travel
Teller, which created the new industries of "nationwide fractional ownership of
business jets" and "electronic ticket delivery networks," respectively.
MR. ROY D. PRINGLE was appointed as Vice President, Chief Financial Officer, and
Chief Information Officer of the Company in November 1997, and provides overall
integrated enterprise-wide financial management systems for the Company. Mr.
Pringle has worked for InfoPak, Inc. for more than the past five years. Mr.
Pringle holds a master's degree from the American Graduate School of
International Management. Prior to joining InfoPak, he was President and founder
of a small software company, Signature Software.
MR. BRUCE D. SANDIG was appointed as a Director of the Company in January 1998
and as Senior-Vice President of Creative Design and Production Engineering of
the Company in November 1997 and provides overall development and integration of
the DV3D(R)and Animotion(TM) Multi-Dimensional Images systems. Mr. Sandig was a
co-founder of InfoPak in 1992. Mr. Sandig has over 15 years experience in
electro-mechanical and software engineering/design with such companies as
Universal Propulsion Company, Kroy, Inc., Dial Manufacturing, and Softie, Inc.,
where he also created several proprietary software games for Nintendo.
MS. SUSAN A. GUNTHER has served as Director of the Company since January 1998.
Since January 1998 she has served as Managing Principal Consultant for Oracle,
Inc. She served as Director of Business Processing from March 1995 to December
1997 for AmKor Electronics.
Currently, the Audit Committee, comprised of Mr. Pringle and Ms. Gunther, is the
only Committee of the Board of Directors.
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.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and Bylaws of Dimensional Visions provide that
Dimensional Visions will indemnify and advance expenses, to the fullest extent
permitted by the Delaware General Corporation Law, to each person who is or was
a director, officer or agent of Dimensional Visions, or who serves or served any
other enterprise or organization at the request of Dimensional Visions (an
"Indemnitee"). Under Delaware law, to the extent that an Indemnitee is
successful on the merits of a suit or proceeding brought against him or her by
reason of the fact that he or she was a director, officer or agent of
Dimensional Visions, or serves or served any other enterprise or organization at
the request of Dimensional Visions, Dimensional Visions will indemnify him or
9
<PAGE>
her against expenses (including attorneys' fees) actually and reasonably
incurred in connection with such action. If unsuccessful in defense of a
third-party civil suit or a criminal suit, or if such a suit is settled, an
Indemnitee may be indemnified under Delaware law against both (i) expenses,
including attorneys' fees, and (ii) judgments, fines and amounts paid in
settlement if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of Dimensional Visions,
and, with respect to any criminal action, had no reasonable cause to believe his
other conduct was unlawful. If unsuccessful in defense of a suit brought by or
in the right of Dimensional Visions, where the suit is settled, an Indemnitee
may be indemnified under Delaware law only against expenses (including
attorneys' fees) actually and reasonably incurred in the defense or settlement
of the suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of
Dimensional Visions except that if the Indemnitee is adjudged to be liable for
negligence or misconduct in the performance of his or her duty to Dimensional
Visions, he or she cannot be made whole even for expenses unless a court
determines that he or she is fully and reasonably entitled to indemnification
for such expenses. Also under Delaware law, expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be paid
by Dimensional Visions in advance of the final disposition of the suit, action
or proceeding upon receipt of an undertaking by or on behalf of the officer or
director to repay such amount if it is ultimately determined that he or she is
not entitled to be indemnified by Dimensional Visions. Dimensional Visions may
also advance expenses incurred by other employees and agents of Dimensional
Visions upon such terms and conditions, if any, that the Board of Directors of
Dimensional Visions deems appropriate. Insofar as indemnification for
liabilities arising under the Act may be permitted to directors, officers or
persons controlling Dimensional Visions pursuant to the foregoing provisions, in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
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 on 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.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation earned by or paid to the
Company's Chief Executive Officer for the fiscal year ended June 30, 2000. No
officer of the Company earned more than $100,000 in the fiscal year ended June
30, 2000.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------- ---------------------------------------
Awards Payouts
--------------------------- ----------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Year Salary($) Bonus($) Compensation($) Awards($) Options/SARs(#) Payouts($) Compensation($)
---- --------- -------- --------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John D. Mcphilimy 1999 $89,250 $ 0 $ 0 $0 -- $0 $0
2000 $90,000 $7,500 $ 0 $0 $0 $0
</TABLE>
10
<PAGE>
OPTIONS/SAR GRANTS IN THE FISCAL YEAR 2000
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
Number of % of Total
Securities Option/SARs
Underlying Granted to
Option/SARs Employees in Exercise or Base Expiration
Name Year Granted(#) Fiscal Year Price ($/Share) Date
---- ---- ----------- ----------- --------------- ----
<S> <C> <C> <C> <C> <C>
John D. McPhilimy 2000 550,000 41.9 .25 1/27/05
AGGREGATED OPTIONS/SAR EXERCISES IN THE FISCAL YEAR 2000 AND FY-END
OPTION/SAR VALUES
Number of Securities
Shares Underlying Exercised Value of
Acquired on Value Options/SARs at FY-End(#) Unexercised In-the-Money
Name Year Exercise(#) Realized Exercisable/Unexercisable Options/SARs at FY-End ($)
---- ---- ----------- -------- ------------------------- --------------------------
John D. McPhilimy 2000 -- 0 1,000,000(E) / 0(U) $147,500
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the shares of the
Company's outstanding Common Stock beneficially owned as of September 8, 2000,
by (i) each of the Company's directors and executive officers, (ii) all
directors and executive officers as a group, and (iii) each other person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock.
Name and Address Amount and Nature of Percent
of Beneficial Owners(1) Beneficial Ownership(2) Ownership(2)
----------------------- ----------------------- ------------
John D. McPhilimy (3) 395,000 4.01
127 W. Fellars Drive
Phoenix, AZ 85023
Bruce D. Sandig (4) 700,000 6.90
5801 N. 14th Street
Phoenix, AZ 85014
Roy D. Pringle (5) 506,047 5.08
4915 W. Marco Polo Road
Glendale, AZ 85308
Susan A. Gunther (6) 75,000 0.79
26210 S. Lime Drive
Queen Creek, AZ 85242
Robert J. Kelly (7) 603,580 6.15
8300 N. Hayden Road, #202
Scottsdale, AZ 85258
Dale Riker (8) 699,634 7.22
10040 E. Happy Valley Road
Scottsdale, AZ 85255
Robert H. Kite (9) 1,202,760 11.85
6200 E. Huntress Drive
Paradise Valley, AZ 85253
All executive officers and directors 1,676,047 15.07
as a group (4 persons) (10)
11
<PAGE>
----------
(1) Each person named in the table has sole voting and investment power with
respect to all Common Stock beneficially owned by him or her, subject to
applicable community property law, except as otherwise indicated. Except as
otherwise indicated, each of such persons may be reached through the
Company at 2301 W. Dunlap Avenue, Suite 207, Phoenix, Arizona 85021.
(2) The percentages shown are calculated based upon the 9,459,913 shares of
Common Stock outstanding on September 8, 2000. The numbers and percentages
shown include the shares of Common Stock actually owned as of September 8,
2000 and the shares of Common Stock that the identified person or group had
the right to acquire within 60 days of such date. In calculating the
percentage of ownership, all shares of Common Stock that the identified
person or group had the right to acquire within 60 days of September 8,
2000 upon the exercise of options and warrants, or the conversion of
Preferred Stock, are deemed to be outstanding for the purpose of computing
the percentage of the shares of Common Stock owned by such person or group,
but are not deemed to be outstanding for the purpose of computing the
percentage of the shares of Common Stock owned by any other person.
(3) Mr. McPhilimy has warrants to purchase 395,000 shares of Dimensional
Visions' common stock at an exercise price of $.20 until October 28, 2003.
(4) Mr. Sandig owns 10,000 shares of Dimensional Visions' common stock. Also
included in the amount are common stock purchase warrants to purchase
230,000 shares of Dimensional Visions' common stock at an exercise price of
$.20 until October 28, 2003 and warrants to purchase 460,000 shares of
common stock at an exercise price of $.25 until January 27, 2005.
(5) Mr. Pringle owns 6,047 shares of Dimensional Visions' common stock. Also
included in the amount are common stock purchase warrants to purchase
210,000 shares of Dimensional Visions' common stock at an exercise price of
$.20 until October 28, 2003 and warrants to purchase 290,000 shares of
common stock at an exercise price of $.25 until January 27, 2005.
(6) Ms. Gunther has warrants to purchase 40,000 shares of Dimensional Visions'
common stock at an exercise price of $.50 until October 28, 2003 and
warrants to purchase 35,000 shares of common stock at an exercise price of
$.25 until January 27, 2005.
(7) Mr. Kelly owns 247,875 shares of Dimensional Visions' common stock. Also
included in the amount are common stock purchase warrants to purchase
305,705 shares of common stock and preferred stock which can be converted
into 50,000 shares of common stock.
(8) Mr. Riker owns 464,634 shares of Dimensional Visions' common stock. Also
included in the amount are common stock purchase warrants to purchase
235,000 shares of common stock.
(9) Mr. Kite owns 512,760 shares of Dimensional Visions' common stock. Also
included in the amount are common stock purchase warrants to purchase
380,000 shares of common stock and preferred stock which can be converted
into 310,000 shares of common stock.
(10) Includes common stock purchase warrants to purchase in the aggregate
1,660,000 shares of the Company's Common Stock.
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 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 after June 12, 1996, the effective date of the 1996
Plan. The 1996 Plan is administered by the Board of Directors. In its
discretion, the Board of Directors may elect to administer the 1996 Plan.
Restricted stock entitles 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. Deferred stock entitles the recipients
to receive shares of the Company's Common Stock in the future.
As of June 30, 2000, 5,002,978 shares have been issued pursuant to this plan.
12
<PAGE>
1999 STOCK OPTION PLAN
On November 15, 1999, the Board of Directors of Dimensional Visions adopted the
1999 Stock Option Plan (the "1999 Plan"). This plan was approved by a majority
of our stockholders at our January 28, 2000, stockholders' meeting. The purpose
of the 1999 Plan is to advance the interests of the Company by encouraging and
enabling acquisition of a financial interest in the Company by its officers and
other key individuals. The 1999 Plan is intended to aid the Company in
attracting and retaining key employees, to stimulate the efforts of such
individuals and to strengthen their desire to remain with the Company. A maximum
of 1,500,000 shares of the Company's common stock are available to be issued
under the 1999 Plan. The option exercise price will be 100% of the fair market
value of the Company's common stock on the date the option is granted and will
be exercisable for a period not to exceed 10 years from the date of grant.
As of June 30, 2000, no shares have been issued pursuant to this plan.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
John D. McPhilimy has an employment agreement with the Company. The term of the
agreement is three years ending in November 2000. Mr. McPhilimy's base
compensation is $90,000 per year. The agreement renews by mutual written consent
on the thirtieth month of its term for a two year period without further action
by either party by either the Company or Mr. McPhilimy. The agreement may be
terminated by the Company for cause.
Roy D. Pringle has an employment agreement with the Company. The term of the
agreement is three years ending in November 2000. Mr. Pringle's base
compensation is $72,000 per year.
Bruce D. Sandig has an employment agreement with the Company. The term of the
agreement is three years ending in November 2000. Mr. Sandig's base compensation
is $84,000 per year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1(a) Articles of Incorporation, dated May 12, 1988
3.2(a) Bylaws
4.1(a) Certificate of Designation of Series A Convertible Preferred Stock,
dated December 12, 1992
4.2(a) Certificate of Designation of Series B Convertible Preferred Stock,
dated December 22, 1993
4.3(a) Certificate of Designation of Series P Convertible Preferred Stock,
dated September 11, 1995
4.4(a) Certificate of Designation of Series S Convertible Preferred Stock,
dated August 28, 1995
4.5(a) Certificate of Designation of Series C Convertible Preferred Stock,
dated November 2, 1995
4.6(a) Certificate of Designation of Series D and Series E Convertible
Preferred Stock dated August 25, 1999
4.7(a) Form of Warrant Agreement to debt holders, dated January 15, 1998
4.8(a) Form of Warrant Agreement to debt holders, dated April 8, 1998
4.9(a) Form of Warrant Agreement to participants in Private Placement
dated April 8, 1998
4.10(a) Series A Convertible Secured Debenture
4.11(a) Security Agreement for Series A Convertible Secured Debentures
10.1(a) 1996 Equity Incentive Plan
10.2(a) 1999 Stock Option Plan
10.3(a) Agreement dated September 25, 1997 by and between InfoPak, Inc.,
DataNet Enterprises, LLC, and David and Staci Noles 10.4(a) Lease
Agreement, dated October 27, 1997
10.5(a) Employment Agreement dated August 1, 1998, with John D. McPhilimy
10.6(a) Employment Agreement dated November 1, 1997, with Bruce D. Sandig
10.7(a) Employment Agreement dated November 1, 1997, with Roy D. Pringle
10.8(b) Letter of Agreement with Swartz Private Equity LLC, dated
September 5, 2000
21.1(b) Subsidiaries of the Registrant
27.1(b) Financial Data Schedule
(b) Reports on Form 8-K.
None.
----------
(a) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 dated June 19, 2000, as amended (Registration No. 333-30368).
(b) Incorporated by reference from the Registrant's Form 10-KSB for the year
ended June 30, 2000, filed with the Commission on September 28, 2000.
13
<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 INCORPORATED
DATED: October 4, 2000 By: /s/ John D. Mcphilimy
------------------------------------
John D. McPhilimy, Chairman 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.
Signature Title Date
--------- ----- ----
/s/ John D. Mcphilimy Chairman, Chief Executive October 4, 2000
-------------------------- Officer
John D. McPhilimy
/s/ Bruce D. Sandig Vice President, Director October 4, 2000
--------------------------
Bruce D. Sandig
/s/ Roy D. Pringle Vice President, Director October 4, 2000
--------------------------
Roy D. Pringle
/s/ Susan A. Gunther Director October 4, 2000
--------------------------
Susan A. Gunther
14
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
YEARS ENDED JUNE 30, 2000 AND 1999
Index to Consolidated Financial Statements and Schedules
Page
----
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance Sheet F-6
Statements of Operations F-7
Statements of Stockholders'Equity (Deficiency) F-8
Statements of Cash Flows F-12
Notes to Consolidated Financial Statements F-15
Schedules
Independent Auditors' Report F-29
Schedule IV - Property and Equipment F-31
Schedule V - Accumulated Depreciation and
Amortization of Property and Equipment F-32
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiary
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Dimensional
Visions Incorporated and Subsidiary (the "Company") as of June 30, 2000, and the
related consolidated statement of operations, stockholders' equity (deficiency),
and cash flows for the year ended June 30, 2000. 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 audit 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 audit provides 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 Incorporated
and Subsidiary as of June 30, 2000 and the results of their operations and their
cash flows for the year ended June 30, 2000 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 financed its
operations primarily through the sale of its securities. As described in Note 1
to the consolidated financial statements, the Company has suffered recurring
losses from operations and has limited sales of its products, 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 its ability to
F-2
<PAGE>
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiary
(1) successfully market its products, (2) obtain sufficient capital
contributions and/or financing as may be required to sustain its current
operations and fulfill its sales and marketing activities, (3) achieve a level
of sales adequate to support the Company's cost structure, and (4) 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.
/s/ Kopple & Gottlieb, LLP
KOPPLE & GOTTLIEB, LLP
Jenkintown, Pennsylvania
September 1, 2000
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiary
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Dimensional
Visions Incorporated and Subsidiary (the "Company") as of June 30, 1999 (not
presented herein), and the related consolidated statement of operations,
stockholders' equity (deficiency), and cash flows for the year ended June 30,
1999. 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 audit 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 audit provides 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 Incorporated
and Subsidiary as of June 30, 2000 and the results of their operations and their
cash flows for the year ended June 30, 1999 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 financed its
operations primarily through the sale of its securities. As described in Note 1
to the consolidated financial statements, the Company has suffered recurring
losses from operations and has limited sales of its products, 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 its ability to
F-4
<PAGE>
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiary
(1) successfully market its products, (2) obtain sufficient capital
contributions and/or financing as may be required to sustain its current
operations and fulfill its sales and marketing activities, (3) achieve a level
of sales adequate to support the Company's cost structure, and (4) 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.
/s/ GITOMER & BERENHOLZ, P.C.
Huntingdon Valley, Pennsylvania
October 7, 1999
F-5
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash $ 276,333
Notes receivable, net of allowance for bad debts of $443,669 --
Accounts receivable, trade 350,493
Prepaid expenses 9,226
------------
Total current assets 636,053
------------
Equipment
Equipment 479,372
Furniture and fixtures 46,944
------------
526,316
Less accumulated depreciation 308,963
------------
217,353
------------
Other assets
Patent rights and other assets 31,627
------------
31,627
------------
Total assets $ 885,033
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of obligations under capital leases $ 50,962
Accounts payable, accrued expenses and other liabilities 379,807
------------
Total current liabilities 430,769
------------
Obligations under capital leases, net of current portion 88,343
------------
Total liabilities 519,112
------------
Commitments and contingencies --
Stockholders' equity
Preferred stock - $.001 par value, authorized
10,000,000 shares; issued and outstanding 1,146,044 1,146
Additional paid-in capital 1,474,295
------------
1,475,441
Common stock - $.001 par value, authorized
100,000,000 shares; issued and outstanding 8,934,916 8,935
Additional paid-in capital 20,885,581
Deficit (21,828,753)
------------
Total stockholders' equity before deferred consulting contracts 541,204
Deferred consulting contracts (175,283)
------------
Total stockholders' equity 365,921
------------
Total liabilities and stockholders' equity $ 885,033
============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999
----------- -----------
Operating revenue $ 1,008,862 $ 741,901
Cost of sales 662,021 562,711
----------- -----------
Gross profit 346,841 179,190
Operating expenses
Engineering and development costs 169,895 146,480
Marketing expenses 129,520 301,630
General and administrative expenses 852,140 605,347
----------- -----------
Total operating expenses 1,151,555 1,053,457
----------- -----------
Loss before other income (expenses) (804,714) (874,267)
----------- -----------
Other income (expenses)
Interest expense (173,878) (207,727)
Interest income 14,779 18,188
Bad debt expense on notes receivable (57,332) (402,006)
----------- -----------
(216,431) (591,545)
----------- -----------
Net loss (1,021,145) (1,465,812)
Dividends in arrears on preferred stock (74,225) (88,050)
----------- -----------
Net Loss available to common shareholders $(1,095,370) $(1,553,862)
=========== ===========
Loss per share
Basic and diluted loss per common share $ (.18) $ (.39)
=========== ===========
Shares used in computing net loss per share 6,052,835 3,973,118
=========== ===========
See notes to consolidated financial statements.
F-7
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value) Additional ($.001 Par Value) Additional
------------------ Paid-in ------------------ Paid-in
Shares Amount Capital Shares Amount Capital Deficit Total
------ ------ ------- ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1998 133,321 $ 133 $ 683,278 3,612,101 $3,612 $18,862,075 $(19,341,796) $ 207,302
Conversion of 1,500 shares
Series B convertible preferred
stock valued at $15,000 into
6,000 shares of the Company's
common stock (1,500) (1) (14,999) 6,000 6 14,994 -- --
Conversion of 1,011 shares
Series C convertible preferred
stock valued at $10,110 into
47,390 shares of the Company's
common stock (1,011) (1) (10,109) 403 -- 10,110 -- --
Issuance of 1,519,688 shares of
the Company's common stock to
consultants for services valued
at $320,593 -- -- -- 1,519,688 1,520 319,073 -- 320,593
Issuance of 485,000 warrants to
purchase 485,000 shares of the
Company's common stock at $.50
per share for a three and a
half year period commencing
January 16, 1998 in connection
with the issuance of
convertible debentures due July
31, 2001. Black Scholes option
pricing model was used to value
the warrants -- -- -- -- -- 310,850 -- 310,850
Issuance of 85,000 warrants to
purchase 85,000 shares of the
Company's common stock at $.25
per share and issuance of
150,000 warrants to purchase
150,000 shares of the Company's
common stock at $.10 per share
for a three year period
commencing January 25, 1999 in
connection with the issuance of
convertible debentures due July
1999 through October 1999. The
Black Scholes option pricing
model was used to value the
warrants -- -- -- -- -- 39,300 -- 39,300
Net loss -- -- -- -- -- -- (1,465,812) (1,465,812)
------- ------ --------- --------- ------ ----------- ------------ -----------
Balance, June 30, 1999 130,810 $ 131 $ 658,170 5,138,192 $5,138 $19,556,402 $(20,807,608) $ (587,767)
======= ====== ========= ========= ====== =========== ============ ===========
</TABLE>
F-8
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value) Additional ($.001 Par Value) Additional
------------------ Paid-in ------------------ Paid-in
Shares Amount Capital Shares Amount Capital Deficit Total
------ ------ ------- ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30 1999 130,810 $ 131 $ 658,170 5,138,192 $5,138 $19,556,402 $(20,807,608) $(587,767)
Conversion of 4,266 shares
Series C convertible preferred
stock valued at $42,660 into
1,703 shares of the Company's
common stock (4,266) (4) (42,656) 1,703 2 42,658 -- --
Exercise of 135,000 warrants to
purchase 135,000 shares of the
Company's common stock at $.20
per share -- -- -- 135,000 135 26,865 -- 27,000
Exercise of 355,000 warrants to
purchase 355,000 shares of the
Company's common stock at $.10
per share -- -- -- 355,000 355 35,145 -- 35,500
Exercise of 30,000 warrants to
purchase 30,000 shares of the
Company's common stock at $.50
per share -- -- -- 30,000 30 14,970 -- 15,000
Exercise of 32,000 warrants to
purchase 32,000 shares of the
Company's common stock at $.25
per share -- -- -- 32,000 32 7,968 -- 8,000
Issuance of 166,730 shares of
the Company's common stock to
settle accounts payable valued
at $62,398 -- -- -- 166,730 167 62,231 -- 62,398
Issuance of 544,000 shares of
the Company's common stock to
consultants for services valued
at $341,250 -- -- -- 544,000 544 340,706 -- 341,250
Issuance of 375,000 shares of
the Company's Series D
Preferred Stock 375,000 375 337,125 -- -- -- -- 337,500
Issuance of 675,000 shares of
the Company's Series E
Preferred Stock 675,000 675 617,325 -- -- -- -- 618,000
Conversion of 7,500 shares
Series A convertible preferred
stock valued at $75,000 into
12,000 shares of the Company's
common stock (7,500) (8) (74,992) 12,000 12 74,988 -- --
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value) Additional ($.001 Par Value) Additional
----------------- Paid-in ----------------- Paid-in
Shares Amount Capital Shares Amount Capital Deficit Total
------ ------ ------- ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of 23,000 shares
Series D convertible preferred
stock valued at $20,700 into
46,000 shares of the Company's
common stock (23,000) (23) (20,677) 46,000 46 20,654 -- --
Issuance of 40,000 shares of
Company's common stock as
payment of a $20,000 commission
owed from the sale of Series D
Preferred Stock in lieu of a
cash payment -- -- -- 40,000 40 19,960 -- 20,000
Conversion of debt of $570,000
and related interest of $97,387
at $.375 pursuant to SB-2
registration statement -- -- -- 1,779,691 1779 665,608 -- 667,387
Conversion of debt of $150,000
and related interest of $13,650
at $.25 pursuant to SB-2
registration statement -- -- -- 654,600 655 162,995 -- 163,650
Professional fees incurred in
connection with SB-2
registration statement -- -- -- -- -- (15,698) (15,698)
Adjustment for long term debt
discount of which debt was
converted into equity with the
SB-2 registration -- -- -- -- -- (116,622) -- (116,622)
Adjustment for deferred
offering costs associated with
the SB-2 registration -- -- -- -- -- (13,249) -- (13,249)
Issuance of 323,293 warrants to
purchase the Company's common
stock at $.10 per share
commencing January 2001 in
connection with the issuance of
convertible debentures -- -- -- -- -- -- -- --
Issuance of 395,000 warrants to
purchase the Company's common
stock at $.25 per share
commencing October 2000 in
connection with private
placement of the Company's
securities -- -- -- -- -- -- -- --
Issuance of 1,397,500 warrants
to purchase the Company's
common stock at $.25 per share
commencing December 2000
through February 2005 for
employee incentives and
consultants -- -- -- -- -- -- -- --
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
Preferred Stock Common Stock
($.001 Par Value) Additional ($.001 Par Value) Additional
------------------ Paid-in ------------------ Paid-in
Shares Amount Capital Shares Amount Capital Deficit Total
------ ------ ------- ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 917,500 warrants to
purchase the Company's common
stock at $.50 per share
commencing October 2000 through
January 2003 in connection with
private placement of the
Company's securities -- -- -- -- -- -- -- --
Issuance of 57,000 warrants to
purchase the Company's common
stock at $1.20 per share
commencing October 2000 in
connection with private
placement commissions -- -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- (1,021,145) (1,021,145)
--------- ------ ---------- --------- ------ ----------- ------------ -----------
Balance, June 30, 2000 1,146,044 $1,146 $1,474,295 8,934,916 $8,935 $20,885,581 $(21,828,753) $ 541,204
========= ====== ========== ========= ====== =========== ============ ===========
</TABLE>
F-11
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operating activities
Net loss $(1,021,145) $(1,465,812)
Adjustments to reconcile net loss to net
cash used in operating activities
Allowance for bad debts on notes receivable 41,663 402,006
Consulting service paid through issuance of
warrants and common stock 22,500 65,593
Depreciation and amortization of property and equipment 42,299 46,172
Amortization of debt discount 121,396 112,132
Amortization of other assets and deferred costs 262,858 36,811
Interest expense paid through issuance of common stock 50,400 --
Changes in assets and liabilities which provided (used) cash
Accounts receivable, trade (272,425) 66,552
Inventory 4,822 62,464
Prepaid supplies and expenses 10,748 7,782
Accounts payable, accrued expenses and other liabilities (31,332) 94,196
----------- -----------
Net cash used in operating activities (768,216) (572,104)
----------- -----------
Investing activities
Payment of obligations under capital lease (49,702) (16,477)
Purchase of equipment (1,071) (57,279)
Proceeds from payments on notes receivable -- 18,169
----------- -----------
Net cash used in investing activities
(50,773) (55,587)
----------- -----------
</TABLE>
F-12
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Financing activities
Proceeds from
Exercise of warrants 85,500 --
Sale of Preferred stock net of offering costs of $74,500 975,500 --
Short-term borrowings -- 235,000
Long-term debt -- 485,000
Reduction in deferred consulting fee contract originally
paid in common stock 30,000 100,000
Borrowings from factor -- 195,560
Payment of debt obligations -- (350,060)
Disbursement of debt issuance costs -- (33,700)
Professional fees incurred in connection with SB-2
registration statement (15,697) --
----------- -----------
Net cash provided by financing activities 1,075,303 631,800
----------- -----------
Net increase in cash and cash equivalents 256,314 4,109
Cash and cash equivalents, beginning of year 20,019 15,910
----------- -----------
Cash, end of year $ 276,333 $ 20,019
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 24,677 $ 34,957
=========== ===========
Issuance of common stock in connection with
consulting services $ 341,250 $ 320,593
=========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities for
fiscal year 2000:
The Company recorded capital lease obligations of $86,422 relating to the
acquisition of equipment.
The Company issued 12,000 shares of the Company's common stock in
connection with the conversion of Series A Convertible Preferred Stock
valued at $75,000.
F-13
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Supplemental disclosure of non-cash investing and financing activities for
fiscal year 2000 (continued):
The Company issued 40,000 shares of its common stock as payment of a
$20,000 commission owed from the sale of Series D Preferred Stock offering
in lieu of a cash payment.
The Company issued 1,707 shares of the Company's common stock in connection
with the conversion of Series C Convertible Preferred Stock valued at
$42,660.
The Company issued 46,000 shares of the Company's common stock in
connection with the conversion of Series D Convertible Preferred Stock
valued at $20,700.
The Company issued 544,000 of the Company's common stock to consultants for
services valued at $341,250.
The Company issued 166,730 of the Company's common stock, in lieu of cash
to settle $62,398 of accounts payable.
The Company issued 2,434,291 shares of the Company's common stock in
connection with the conversion of $720,000 in debt and related accrued
interest of $111,037.
Supplemental disclosure of non-cash investing and financing activities for
fiscal year 1999:
The Company issued 6,403 shares of the Company's common stock in connection
with the conversion of convertible preferred stock valued at $25,110 as
follows:
Converted to
Value Common Stock
---------- ------------
Series B Convertible Preferred Stock $ 15,000 6,000
Series C Convertible Preferred Stock 10,110 403
---------- ----------
$ 25,110 6,403
========== ==========
The Company issued 1,519,688 shares of the Company's common stock to
consultants for services valued at $320,593.
The Company recorded additional paid-in capital of $350,150 with the
issuance of warrants to purchase 920,000 shares of the Company's common
stock in connection with the short and long-term debenture financing.
F-14
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
Note 1: Summary of Significant Accounting Policies
DESCRIPTION OF BUSINESS, FINANCING AND BASIS OF FINANCIAL STATEMENT
PRESENTATION
Dimensional Visions Incorporated (the "Company" or "DVI") was incorporated
in Delaware on May 12, 1988. The Company produces and markets
lithographically printed stereoscopic and animation print products.
The Company, through a wholly-owned subsidiary of InfoPak, Inc. has
developed a data delivery system that provides end users with specific
industry printed materials by way of a portable hand-held reader. Data is
acquired electronically from the data provided by mainframe systems and
distributed through a computer network to all subscribers.
The Company has financed its operations primarily through the sale of its
securities. The Company has had limited sales of its products during the
years ended June 30, 2000 and 1999. Even though the sales during the past
two years have significantly increased over the prior years, the volume of
business is not nearly sufficient to support the Company's cost structure.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses since inception of $21,828,753 and has a
working capital of $206,544 as of June 30, 2000. The future of the Company
as an operating business will depend on its ability to (1) successfully
market and sell its products, (2) obtain sufficient capital contributions
and/or financing as may be required to sustain its current operations 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
achieve a level of profitability. Management's plan to address these issues
includes (a) redirecting its marketing efforts of the Company's products
and substantially increasing sales results, (b) continued exercise of tight
cost controls to conserve cash, (c) raising additional long term financing.
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 available funds at June
30, 2000, plus the limited revenue is not sufficient to satisfy the present
cost structure. Management recognizes that the Company must generate
additional resources to enable it to continue operations. Management plans
include the continued expansion of the sale of its products and the sale of
additional securities.
F-15
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
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 that the Company will achieve profitability or
positive cash flow from the sale of its products. 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 and/or seek protection under the bankruptcy laws.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of DVI and its
wholly-owned subsidiary, InfoPak, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
EQUIPMENT, DEPRECIATION AND AMORTIZATION
Equipment is stated at cost. Depreciation, which includes amortization of
assets under capital lease is 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
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.
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.
F-16
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 1: Summary of Significant Accounting Policies (Continued)
INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
LOSS PER SHARE
The Company adopted Statement of Financial Accounting Standards Statement
No. 128, "Earnings Per Share" (FAS 128"), which is effective for fiscal
years ending after December 15, 1997. FAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Dilutive earnings per share is very similar to the previously
reported fully diluted earnings per share.
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.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables. The
Company relies on a limited number of customers for its sales. The Company
is in the process of building a customer base for its products and,
therefore, the degree of risk is substantially higher until the base grows.
The Company also relies on several key vendors to supply plastics and
printing services. Although there are a limited number of vendors capable
of fulfilling the Company's needs, the Company believes that other vendors
could provide for the Company's needs on comparable terms. Abrupt changes
could, however, cause a delay in processing and a possible inability to
meet sales commitments on schedule, or a possible loss of sales, which
would affect operating results adversely.
F-17
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 1: Summary of Significant Accounting Policies (Continued)
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees
in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25") and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
Note 2: Cash
The Company considers all highly liquid investments, with an original
maturity of three months or less when purchased, to be cash equivalents.
The Company maintains its cash in banks located in Arizona. The total cash
balances are insured by the FDIC up to $100,000 per financial institution.
As of June 30, 2000, the uninsured balance was $8,696. As of June 30, 2000
$166,155 was held in a brokerage account which is fully insured.
Note 3: Notes Receivable
Notes receivable consists of the following:
Interest
Rate Amount Maturity
---- -------- --------
Product Line (1) 11% $360,506 September 2001
InfoReaders (2) 10% 83,163 August 2001
--------
443,669
Less allowance for bad debts 443,669
--------
$ --
========
(1) Effective September 1998, the modified terms provide for payments to
be $11,533 per month. The Company has been unable to collect the
required monthly payments. During the year ended June 30, 1999, the
Company received three installments and a fee of $10,000 which was
included as interest income. Management has determined that they are
currently unable to collect the amounts due on the note. Accordingly,
management has established a 100% allowance against this note. The
Company has determined that it does not make economic sense to take
back this product line and operate this aspect of the business. The
Company will continue to pursue the collection of this note. As of
June 30, 2000 no additional funds have been collected.
F-18
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 3: Notes Receivable (Continued)
(2) On March 1, 1998, the Company sold InfoReaders (hardware) to a
customer for $100,000 and agreed to accept a note for $90,000with
payments commencing on September 1, 1998. The monthly installment is
$2,904, including interest at 10% per annum for thirty-six months. The
Company has not been able to collect the required monthly payments due
on this note. The customer has filed for an arbitration hearing on the
basis that the Company failed to provide data to support their
customer base and is requesting payment of $1,000,000 for the lost
business. The Company made provisions to acquire the data for the
customer. However, the customer was unwilling to pay for the
acquisition cost of the data and bring their account current.
Accordingly, without the updated data and failure to pay the
outstanding balance due the Company, there is no reason to support the
system. No date has been set for the arbitration hearings. The Company
has filed a counter-claim on September 18, 1999, for full payment of
the note. During the year ended June 30, 2000 the Company has provided
an additional allowance of $41,663 against this note. The customer
failed to make the necessary deposits so the hearing scheduled for
April 24-26, 2000 was suspended indefinitely. This matter was closed
by the American Arbitration Association on July 25, 2000.
Note 4: Deferred Costs
Deferred costs as of June 30, 2000, consist of three consulting contracts
totaling $175,283. These costs are accounted for in the equity section as a
contra equity account.
On April 5, 1999, the Company entered into a contract with a consultant.
The fee for services for 36 months is $287,668 ($7,991 per month), or upon
signing of the contract, the Company will issue $255,000 of the Company's
common stock. The market value of the common stock on April 5, 1999 was
$.1875 per share and 1,360,000 shares of registered common stock was issued
(registered under Form S-8). In addition, the warrant price on previously
issued 500,000 warrants was reduced to $.10 per share.
In accordance with the terms of the agreement either party may terminate or
change the terms of this agreement with 30 days written notice. On May 28,
1999 the term of this agreement was modified and the term was reduced to 22
months. Under the provisions of the contract, the consultant is required to
either return the shares or the cash equivalency of the reduction.
Accordingly on May 28, 1999, the Company received a $100,000 payment from
the consultant.
F-19
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 4: Deferred Costs (Continued)
On July 29, 1999 and August 10, 1999, the Company entered into two separate
contracts with consultants. The fee for services for 36 months is $211,520
($5,876 per month), or upon signing of the contract, the Company will issue
$187,500 of the Company's common stock. The market of the common stock on
July 29, 1999 was $0.375 and on August 10, 1999 was $0.50 and 400,000
shares of registered common stock was issued (registered under Form S-8).
In accordance with the terms of the agreement either party may terminate or
change the terms of this agreement with 30 days written notice. During
August 1999 the term of one of the contracts was modified and the term was
reduced to seven months. Under the provisions of the contract, the
consultant is required to either return the shares or the cash equivalency
of the reduction. Accordingly on August 24, 1999, the Company received a
$30,000 payment from the consultant.
The Company incurred debt issuance costs of $33,700 which were being
amortized over 34 months, the term of the Series A convertible debentures.
The balance as of June 30, 1999 was $24,779 and during the year ended June
30, 2000, $11,530 was amortized through June 19, 2000. Upon the
effectiveness of the SB-2 registration statement and the subsequent
conversion of the associated debt on June 19, 2000, the remainder of the
deferred costs, $13,249, was taken against additional paid in capital.
Note 5: Patent Rights and Other Assets
Patent rights $ 58,426
Deposits 4,100
Trademark 225
--------
62,751
Less accumulated amortization 31,125
--------
Total $ 31,626
========
Note 6: Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable $353,927
Accrued expense
Salaries 18,523
--------
Payroll taxes payable 7,357
--------
Total $379,807
========
F-20
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 7: Short-Term Borrowings
During January through April 1999, the Company received short-term
borrowings of $235,000. The loans were 12% convertible debentures, with due
dates ranging from July 25, 1999 through October 29, 1999. The terms of the
debenture provide for a three month extension if the debenture is not paid
on the original due date. During the extension period, interest is
calculated at the stated rate plus 3% through the extended due date (15%).
On June 19, 2000 the debentures were converted into 826,667 shares of the
Company's common stock. The related accrued interest on the short term
borrowings were also converted unto 80,885 shares of the Company's common
stock calculated at a 12% interest rate.
Note 8: Long-Term Debt
During July through September 1998, the Company through a private placement
was able to borrow $485,000 through the issuance of Series A 12%
convertible secured debentures. The debentures are due July 31, 2001.
Interest is accrued and payable on July 31 of each year and the first
interest payment is due July 31, 1999. In the event the Company fails to
pay the debenture holders any accrued interest or principal the default
rate is 16% from the due date through the date paid.
On June 19, 2000 all the Series A convertible secured debentures were
converted into 1,293,327 of the Company's common stock and the related
accrued interest was converted into 233,412 shares of the Company's common
stock.
Note 9: Leases
The company leases certain equipment under a master lease agreement, which
are classified as capital leases. The equipment leases have a five year
term with an option to acquire the equipment for $1 at the end of the lease
term. Leased capital assets included in equipment as of June 30, 2000, was
as follows:
Equipment $255,334
Less accumulated amortization 47,092
--------
$208,242
========
Future minimum payments, by year and in the aggregate, under noncancellable
capital leases and operating leases with terms of one year or more consist
of the following as of June 30, 2000:
F-21
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 9: Leases (Continued)
Years Ending Capital Operating
June 30, Leases Leases
-------- -------- --------
2001 $ 72,463 $ 37,000
2002 72,417 --
2003 30,527 --
-------- --------
175,407 $ 37,000
========
Amounts representing interest 36,102
--------
Present value of net minimum payments 139,305
Current portion 50,962
--------
Long-term portion $ 88,343
========
The Company's rental expense for operating leases was approximately $74,948
and $69,100 for the years ended approximately June 30, 2000 and 1999,
respectively.
The Company is currently negotiating a new lease for its facility, the
current lease expires on December 31, 2000.
Note 10: Commitments and Contingencies
The Company has outstanding employment and consulting contracts
approximately $103,000 that expire in November, 2000.
There are no 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, 2000
was approximately $74,225.
Note 11: Common Stock
As of June 30, 2000, there are outstanding 6,808,910 of non-public warrants
and options to purchase the Company's common stock at prices ranging from
$.10 to $12.50 with a weighted average price of $.55 per share.
As of June 30, 2000, there were 1,146,044 shares of various classes of
Convertible Preferred Stock outstanding which can be converted to 1,457,818
shares of common stock (see Note 12).
F-22
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 11: Common Stock (Continued)
During June 2000, there were $485,000 of secured debentures and related
interest that were converted into 1,526,739 shares of the Company's common
stock and $235,000 of short-term borrowings and related interest that were
converted into 907,552 shares of the Company's common stock.
The total number of shares of the Company's common stock that would have
been issuable upon conversion of the outstanding warrants, options and
preferred stock equaled 8,266,728 shares as of June 30, 2000, and would be
in addition to the 8,934,916 shares of common stock outstanding as of June
30, 2000.
The Company issued during August 1999, September 1999, and February 2000,
1,707 shares of its common stock as a result of the conversion of 4,266
shares of Series C Convertible Preferred Stock.
During February 2000, the Company issued 12,000 shares of its common stock
as a result of the conversion of 7,500 shares of Series A Convertible
Preferred Stock.
The Company issued 40,000 shares of its common stock as payment of a
$20,000 commission owed from the sale of Series D Preferred Stock in lieu
of a cash payment.
The Company issued 544,000 shares of its common stock to consultants for
services valued at $341,250.
During August 1999, the Company issued 166,730 shares of its common stock
in lieu of cash to settle $62,398 of accounts payable.
The Company issued 552,000 shares of its common stock in connection with
the exercise of warrants.
The Company issued during the year ended June 30, 1999, 1,519,688 shares of
the Company's common stock to consultants for services (including $133,788
as deferred) valued at $320,593 (average price per share $.21).
F-23
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 12: Preferred Stock
The Company has authorized 10,000,000 shares of $.001 par value per share
Preferred Stock, of which the following were issued outstanding:
Allocated Outstanding
--------- ---------
Series A Preferred 100,000 15,500
Series B Preferred 200,000 3,500
Series C Preferred 1,000,000 13,404
Series D Preferred 375,000 352,000
Series E Preferred 1,000,000 675,000
Series P Preferred 600,000 86,640
--------- ---------
Total Preferred Stock 1,900,000 1,146,044
========= =========
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 1.6 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 10).
The Company's Series B Convertible 8% Preferred Stock ("Series B
Preferred"), is convertible at the rate of 4 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 10).
The Company's Series C Convertible Preferred Stock ("Series C Preferred")
is convertible at a rate of .4 shares of common stock per share of Series C
Preferred.
The Company's Series D Convertible Preferred Stock ("Series D Preferred")
is convertible at a rate of 2 shares of Common stock per share of Series D
Preferred.
The Company's Series E Convertible Preferred Stock ("Series E Preferred")
is convertible at a rate of 2 shares of Common stock per share of Series E
Preferred.
The Company's Series P Convertible Preferred Stock ("Series P Preferred"),
is convertible at a rate of .4 shares of common stock for each share of
Series P Preferred.
F-24
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 12: Preferred Stock (Continued)
The Company's Series A Preferred, Series B Preferred, Series D Preferred
and Series E Preferred were issued for the purpose of raising operating
funds. 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 P Preferred was issued 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.
Note 13: Stock Option Plan and Equity Incentive Plan
On November 15, 1999, the Board of Directors of Dimensional Visions adopted
the 1999 Stock Option Plan (the "1999 Plan"). This plan was approved by a
majority of our stockholders at our January 28, 2000, stockholders'
meeting. The purpose of the 1999 Plan is to advance the interests of the
Company by encouraging and enabling acquisition of a financial interest in
the company by its officers and other key individuals. The 1999 Plan is
intended to aid the company in attracting and retaining key employees, to
stimulate the efforts of such individuals and to strengthen their desire to
remain with the company. A maximum of 1,500,000 shares of the company's
common stock are available to be issued under the 1999 Plan. The option
exercise price will be 100% of the fair market value of the company's
common stock on the date the option is granted and will be exercisable for
a period not to exceed 10 years from the date of grant.
As of June 30, 2000, no stock options have been granted under this plan.
The Company on June 13, 1996 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
F-25
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 13: Stock Option Plan and Equity Incentive Plan (Continued)
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. Since inception of this plan in
1996 through June 30, 2000, 5,102,978 shares of common stock have been
issued. For the year ended June 30, 2000, 544,000 shares of common stock
have been issued at prices ranging from $.37 to $.625 per share. In
addition, as of June 30, 2000, no options or SAR's have been granted.
During the year ended June 30, 1999, 1,519,688 shares of common stock have
been issued under this plan at prices ranging from $.1875 to $.6562 per
share. In addition, as of June 30, 1999, no options or SAR's have been
granted.
If the Company had elected to recognize compensation expense based on the
fair value of stock plans as prescribed by FAS No. 123, the Company's net
loss and net loss per share would have been increased to the pro forma
amounts indicated below:
2000 1999
----------- -----------
Net Loss available to common shareholders $(1,095,370) $(1,553,862)
Net Loss - pro forma $(1,261,573) $(1,553,862)
Net Loss per share - as reported $ (.18) $ (.39)
Net Loss per share - pro forma $ (.21) $ (.39)
The weighted-average fair value at the date of grant for options granted in
2000 was $.25. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes Option Pricing Model. The following
weighted average assumptions were used: no dividends; expected volatility
factor of 140%; risk-free interest of 5%; and an expected life of five
years. The compensation expense and pro forma net loss may not be
indicative of amounts to be included in future periods.
F-26
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 14: Income Taxes
The tax effects of significant items comprising the Company's net deferred
taxes as of June 30, 2000 were as follows:
Deferred tax assets:
Goodwill $ 284,000
Net operating loss carryforwards 6,769,000
-----------
7,053,000
-----------
Deferred tax liabilities
Allowance for bad debts 191,000
Equipment 26,000
Patent rights 3,000
-----------
220,000
-----------
Net deferred tax asset 6,833,000
Valuation allowance (6,833,000)
-----------
Net deferred tax asset reported $ --
===========
The change in valuation allowance for the year ended June 30, 1999 was
increased by approximately $571,000.
There was no provision for current income taxes for the years ended June
30, 2000 and 1999.
The federal net operating loss carryforwards of approximately $19,070,000
expires in various years through 2020. In addition the Company has state
carryforwards of approximately $3,175,000.
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.
F-27
<PAGE>
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 2000 AND 1999
Note 15: Segment of Business Reporting
The operations of the Company are divided into the following business
segments for financial reporting purposes.
* Lithographically printed stereoscopic prints commonly referred to as
three-dimensional prints and lithographically printed animation.
* Hardware and software information and audio playback systems and
method products and programs.
There are no intersegment or foreign sales. Three customers account for
approximately 82% of the lithographic sales and two customers account for
approximately 98% of the hardware and software information and playback
systems.
Financial information by business segments is as follows:
Hardware
and
Lithographic Software Consolidated
------------ -------- ------------
Net customer sales $ 983,731 $ 25,131 $ 1,008,862
Interest income 14,182 - 14,182
Interest expense 173,878 - 173,878
Operating loss (705,603) (139,132) (844,735)
Segment assets 1,051,323 60,893 1,112,216
Depreciation and amortization 42,097 202 42,299
Note 16: Subsequent Events
On September 5, 2000, the Company entered into a Letter of Agreement with
an investment banking firm to establish a $20 million equity line. This
agreement is subject to the Company filing an effective registration
statement and will end 36 months from the effective registration date. The
Company shall have the right at its sole discretion to put common stock to
the investment banking firm, subject to certain amount limitations and
conditions based upon trading volume of the Company.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiary
Phoenix, Arizona
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of DIMENSIONAL VISIONS INCORPORATED AND
SUBSIDIARY included in this annual report on Form 10-KSB and have issued our
report thereon dated September 1, 2000. 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 audit 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.
/s/ Kopple & Gottlieb, LLP
KOPPLE & GOTTLIEB, LLP
Jenkintown, Pennsylvania
September 1, 2000
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Dimensional Visions Incorporated and Subsidiary
Phoenix, Arizona
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of DIMENSIONAL VISIONS INCORPORATED AND
SUBSIDIARY included in this annual report on Form 10-KSB and have issued our
report thereon dated October 7, 1999. 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 audit 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.
Huntingdon Valley, Pennsylvania
October 7, 1999
F-30
<PAGE>
Schedule IV
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
SCHEDULE IV - PROPERTY AND EQUIPMENT(1)
<TABLE>
<CAPTION>
Other
Balance at Changes -
Beginning Additions Add Balance at
Classification of Period at Cost Retirements(2) (Deduct)(3) End of Period
-------------- --------- ------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended
June 30, 2000
Equipment $401,678 $ 87,493 $ 10,999 $ 1200 $479,372
Furniture and fixtures 50,162 -- 2,016 (1200) 46,944
-------- -------- -------- -------- --------
$394,561 $ 57,279 $ -- $ -- $526,316
======== ======== ======== ======== ========
Year Ended
June 30, 1999
Equipment $370,344 $ 31,334 $ -- $ -- $401,678
Furniture and fixtures 24,217 25,945 -- -- 50,162
-------- -------- -------- -------- --------
$398,561 $ 57,279 $ -- $ -- $451,840
======== ======== ======== ======== ========
</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
(2) Represents equipment and leasehold improvements abandoned or sold
(3) Represents a reclassification
F-31
<PAGE>
Schedule V
DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY
SCHEDULE V - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Other
Balance at Changes -
Beginning Additions Add Balance at
Classification of Period at Cost Retirements(1) (Deduct) End of Period
-------------- --------- ------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended
June 30, 2000
Equipment $251,060 $ 36,972 $ 10,999 $ -- $277,033
Furniture and fixtures 28,621 5,326 2,017 -- 31,930
-------- -------- -------- -------- --------
$279,681 $ 42,298 $ 13,016 $ -- $308,963
======== ======== ======== ======== ========
Year Ended
June 30, 1999
Equipment $209,819 $ 41,241 $ -- $ -- $251,060
Furniture and fixtures 23,690 4,931 -- -- 28,621
-------- -------- -------- -------- --------
$233,509 $ 46,172 $ -- $ -- $279,681
======== ======== ======== ======== ========
</TABLE>
----------
(1) Represents accumulated depreciation and amortization written off as a
result of abandonment or sale
F-32
