SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER PERIOD ENDED December 31, 1995, 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 0-13873
DIMENSIONAL MEDICINE, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1431387
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
10901 Bren Road East 55343
Minnetonka, Minnesota (Zip Code)
(Address of principal executive offices)
(612) 938-8280
(Registrant's telephone number, including area code)
Not Applicable
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.15 Par Value--32,533,460 shares as of January 29, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DIMENSIONAL MEDICINE, INC.
BALANCE SHEET (unaudited)
Dec. 31, March 31,
1995 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,729 $ 71,215
Accounts receivable 1,413,008 1,651,853
Lease receivables 117,359 111,960
Tax benefit receivable 81,660 103,169
Inventories 187,882 186,720
Other current assets 52,091 119,126
------------ ------------
TOTAL CURRENT ASSETS 1,859,729 2,244,043
Software 458,313 470,893
Long-term lease receivables 209,323 284,876
Property, plant and equipment 2,385,072 2,335,358
Less: Accumulated depreciation and amortization (2,142,033) (2,060,015)
------------ ------------
243,039 275,343
------------ ------------
TOTAL ASSETS $ 2,770,404 $ 3,275,155
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 500,000 $ 500,000
Accounts payable 514,056 433,757
Accrued expenses 485,128 573,970
Accounts payable due to National Computer Systems, Inc. 84,418 78,785
Deferred revenues 128,077 164,269
Customer deposits 7,800 59,715
Current portion--note payable to National Computer
Systems, Inc. 601,831 200,000
Current portion of other note payable 102,328 96,173
------------ ------------
TOTAL CURRENT LIABILITIES 2,423,638 2,106,669
Note Payable to National Computer Systems, Inc. 655,000
Other note payable 180,358 257,891
Capital lease obligations 13,052 2,287
Long-term rental abatement -- 35,561
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, issued and outstanding 32,533,460 shares 4,880,019 4,880,019
Additional paid-in capital 8,633,407 8,633,407
Retained-earnings deficit (deduction) (13,360,070) (13,295,679)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 153,356 217,747
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,770,404 $ 3,275,155
============ ============
See Notes to Financial Statements (unaudited).
DIMENSIONAL MEDICINE, INC.
STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
-------------- -------------
1995 1994 1995 1994
------ ------ ------ -----
REVENUES
Net sales $ 671,620 $ 714,683 $ 2,069,417 $ 2,536,419
Customer maintenance and support 518,248 639,617 1,620,247 1,831,609
------------ ------------ ------------ ------------
1,189,868 1,354,300 3,689,664 4,368,028
COSTS AND EXPENSES
Cost of products sold 387,954 252,949 984,244 1,093,065
Cost of maintenance and support provided 128,814 184,194 378,830 654,051
Customer support costs 214,990 240,963 691,173 730,696
Research, development and engineering 227,244 256,830 745,359 781,866
Selling, general and administrative 282,597 375,570 962,916 933,416
------------ ------------ ------------ ------------
1,241,599 1,310,506 3,762,522 4,193,094
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (51,731) 43,794 (72,858) 174,934
OTHER INCOME (EXPENSE)
Interest and other income (expense) 4,920 (389) 19,993 100,159
Interest expense (28,430) (32,328) (89,820) (98,301)
------------ ------------ ------------ ------------
(23,510) (32,717) (69,827) 1,858
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (75,241) 11,077 (142,685) 176,792
Income tax provision (benefit) (54,689) 4,264 (78,294) 68,065
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (20,552) $ 6,813 $ (64,391) $ 108,727
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE $ (.001) $ -- $ (.002) $ .003
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD 32,553,460 32,553,460 32,553,460 32,553,460
============ ============ ============ ============
See Notes to Financial Statements (unaudited)
DIMENSIONAL MEDICINE, INC.
STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended
December 31
------------
1995 1994
------ -----
OPERATING ACTIVITIES
Net income (loss) $ (64,391) $ 108,727
Adjustments to reconcile to net cash provided by
(used in) operating activities:
Depreciation and amortization 218,530 202,803
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 399,383 229,307
(Increase) decrease in inventories and other current
assets 65,873 (102,057)
Increase (decrease) in accounts payable and
accrued expenses (206,970) 169,228
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES 412,425 608,008
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (16,766) (142,649)
Capitalization of software development costs (123,932) (141,078)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (140,698) (283,727)
FINANCING ACTIVITIES
Net bank line of credit borrowings -- (34,000)
Principal payments on notes payable and capital lease
obligations (335,213) (265,493)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (335,213) (299,493)
--------- ---------
INCREASE (DECREASE) IN CASH (63,486) 24,788
CASH AT BEGINNING OF PERIOD 71,215 39,623
--------- ---------
CASH AT END OF PERIOD $ 7,729 $ 64,411
========= =========
See Notes to Financial Statements (unaudited).
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE A - The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10Q and, therefore, do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
all periods presented have been made. The results of operations for the period
ended December 31, 1995 are not necessarily indicative of the operating results
that may be expected for the entire fiscal year ending March 31, 1996. For
further information, refer to the financial statements and footnotes included in
the Company's Annual Report on Form 10K for the year ended March 31, 1995.
NOTE B - Reclassification of some financial statement items has been made to
conform with fiscal 1995 presentation formats.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Revenues
The Company reported net sales of $671,620 for the three month period ended
December 31, 1995, a decrease of 43,063 (6.0%) from the same period of the prior
year. While Maxifile hardware revenues increased, Maxifile software and Maxiview
system sales were down, resulting in a net decline.
For the nine-month period ended December 31, 1995, net sales also declined
(18.4%), when compared to the nine-month period ended December 31, 1994.
Maxifile upgrade and Maxiview system revenues, which were particularly strong in
1994, were down in 1995 and were the primary contributors to the decrease in net
sales during the period.
Customer maintenance and support revenues declined ($121,369) in the third
quarter of fiscal 1996 vs. the third quarter of the previous fiscal year.
Decreased lease, software support, and hardware maintenance revenues resulting
from the termination of a U. S. Government contract in September, 1994, were the
single largest reason for reduced revenues in this category.
The Company also reported a 11.5% decrease in customer maintenance and support
revenues on a year-to-date basis when compared to the prior year. Maxifile
software maintenance and support revenues showed a modest increase in the period
but were offset by U. S. Government contract revenues that declined for the
reasons set forth in the preceding paragraph.
Costs and Expenses
The cost of products sold was up $135,005 on a comparative quarter basis, driven
primarily by increased Maxifile hardware revenues. The direct margin on net
sales, however, declined by 22.4% in the quarter, chiefly as a result of
decreased higher margin Maxifile software and custom programming revenues in the
quarter which have nominal associated direct costs.
In the nine-month period ended December 31, 1995, cost of products sold were
down 11.1% from the same period of the prior year. Decreased Maxifile hardware
upgrade revenues were responsible for the majority of the decrease. Overall, the
direct margin on net sales declined modestly from 56.9% to 52.4% between
periods.
The cost of maintenance and support (direct costs of support and hardware
maintenance incurred with third-party vendors) was down in the three-month
period ended December 31, 1995 when compared to the quarter ended December 31,
1994. Maxifile support and maintenance costs declined, reflecting the trend
toward lower hardware maintenance costs. The cost of supporting the U. S.
Government sites was down due to reduced revenues in this area as well as cost
reduction measures implemented by the Company. The impact of these factors
resulted in an increase in the direct margin from period to period of 3.9%.
The cost of maintenance and support was also down on a year-to-date basis when
compared to the prior year, for the reasons cited in the preceding paragraph.
The direct margin increased 12.3% over the prior year period.
Other operating expenses declined on both a year-to-date and comparative quarter
basis ($46,530 and $148,532 respectively). The decreased operating expenses come
as a result of reduced headcount and a continuing emphasis on cost control. The
Company incurred termination costs in the nine-month period ended December 31,
1995 that were offset by available reserves.
The Company recognized other income of $19,993 in the nine-month period ended
December 31, 1995 vs. $100,159 in the same period of the prior year. Prior year
results included the impact of the sale of a Company tradename that was not
repeated in the current fiscal year.
Interest expense declined in the three and nine-month periods ended December 31,
1995 when compared to the same periods of the prior year. Reduced debt levels
were responsible for the decrease.
Liquidity and Capital Resources
The Company's working capital deficit at December 31, 1995 totaled $563,909,
down from a balance of $206,653 at March 31, 1995. The decline resulted
primarily from the reclassification of the long-term portion of the note payable
to National Computer Systems (NCS) to current liabilities. The unpaid principal
amount of the note is payable in a lump sum on April 30, 1996. The Company
relies on cash flow from operations and a $500,000 bank line of credit to fund
its operating cash needs. Management of cash and control of costs continue to be
top priorities.
The Company remains dependent on the continuing financial support of NCS, who
currently guarantees the Company's borrowings under its line of credit with a
bank and other long-term borrowings. Funds generated from operations and funds
available from the Company's line of credit facility are expected to be adequate
to meet current cash requirements. Since NCS acquired its 85% share of the
Company in December 1993, the Company and NCS have been seeking a strategic
partner for the Company to secure access to additional financing, provide a path
for ongoing product development, and ensure continued viability of the business.
In December 1995, the Company announced the signing of a letter of intent with
Dynamic Healthcare Technologies (Dynamic), whereby Dynamic will acquire 100% of
the stock of the Company. It is expected that the transaction will close in
early fiscal 1997.
The Company does not have any material commitments for the acquisition of
long-term assets. The impact of inflation on the Company is not significant.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of matters to a vote of Security Holders
Not Applicable
Item 5. Other information
The Company announced the resignation of David H. Littlefield, its President,
Chief Executive Officer, and member of the Board of Directors, effective
October, 1, 1995.
On December 8, 1995, the Company announced the execution of a letter of intent
with Dynamic Healthcare Technologies (Dynamic), whereby Dynamic has agreed to
purchase 100% of the common stock of the Company, subject to the negotiation and
execution of a definitive agreement, approval of the Boards of Directors of the
Company and Dynamic, and approval of the shareholders of DMI. In accordance with
the general terms of the letter, Dynamic has agreed to purchase 27,653,441
shares owned by National Computer Systems (NCS), the Company's 85% shareholder,
for $355,000 or $.013 per share. In addition, Dynamic has agreed to retire the
existing indebtedness of the Company held by NCS. Dynamic also agreed to acquire
the remaining 4,880,019 outstanding shares at a price of $.040 per share.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein: None
The Company did not file any reports on Form 8-K during the three months ended
December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dimensional Medicine, Inc.
(Registrant)
Date January 29, 1996 /s/ John P. Paumen
------------------ --------------------
John P. Paumen, President and CEO
Date January 29, 1996 /s/ Mark D. Holman
------------------ ---------------------
Mark D. Holman, Chief Financial Officer