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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q-SB
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
SECURITIES AND EXCHANGE COMMISSION FILE NUMBER
000-26369
DICOM IMAGING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0422026
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1350 E. FLAMINGO ROAD
SUITE 847
LAS VEGAS, NV 89119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(877) 624-6243
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(520) 441-8755
(REGISTRANT'S FACSIMILE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.
YES [ ] NO [X]
The number of issued and outstanding shares of the Registrants
Common Stock, $0.001 par value, as of September 30, 1999, was 2,400,000.
================================================================================
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DICOM IMAGING SYSTEMS, INC.
PART I-FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements:
Balance Sheet at September 30, 1999 ................................... 4
Consolidated Statement of Operations for the period from
March 17, 1999 to September 30, 1999 .................................. 5
Consolidated Statement of Operations for the interim period
from April 1, 1999 to September 30, 1999 .............................. 6
Consolidated Statement of Operations for the three month period
ended September 30, 1999 ......................... .................... 7
Statement of Stockholders Equity for the interim period from March 17,
1999 to September 30, 1999 ............................................ 8
Consolidated Statement of Cash Flows for the period from March 17, 1999
to September 30, 1999 ................................................. 9
Consolidated Statement of Cash Flows for the interim period from
April 1, 1999 to September 30, 1999 ................................... 10
Consolidated Statement of Cash Flows for the three month period
ended September 30, 1999............................................... 11
Notes to Unaudited Consolidated Financial Statements................... 12
Item 2. Management's Plan of Operation for the twelve month period
beginning September 30, 1999........................................... 14
PART II-OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 15
Item 2. Changes in Securities.................................................. 15
Item 3. Defaults Upon Senior Securities........................................ 15
Item 4. Submission of Matters to a Vote of Security Holders.................... 15
Item 5. Other Information ..................................................... 16
Item 6. Exhibits and Reports on Form 8-K....................................... 16
Signatures...................................................................... 17
Exhibit 27.1 Financial Data Schedule
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INFORMATION REQUIRED IN QUARTERLY REPORT
CERTAIN FORWARD-LOOKING INFORMATION
The information contained in this Quarterly Report includes
forward-looking statements. Since this information is based on current
expectations which involve risks and uncertainties, actual results could differ
materially from those expressed in the forward-looking statements.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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DICOM IMAGING SYSTEMS, INC
CONSOLIDATED BALANCE SHEET
As of September 30, 1999, with comparative figures for March 31, 1999
(Unaudited)
(Development Stage Company)
September 30, 1999 March 31, 1999
------------------ --------------
ASSETS
CURRENT ASSETS
CASH ON HAND
Checking Accounts $ 76,300 $ 11,863
Savings Accounts 4,783 211,039
Petty Cash 128 --
--------------------------
TOTAL CASH ON HAND 81,211 222,902
Stock Subscription Receivable -- 443,950
Accounts Receivable 2,669 --
Prepaid Expenses 21,947
Licensing Agreement Receivable -- 97,500
Dicom Software Loan Receivable 66,093 --
--------------------------
TOTAL CURRENT ASSETS 171,920 764,352
--------------------------
LONG TERM ASSETS
Deferred Income Tax 309,501 34,998
Computer Equipment
Comp Equip - Orig Cost 48,825 34,914
Comp Equip - Accum. Dep'n (8,087) 0
--------------------------
Net Computer Equipment 40,738 34,914
--------------------------
Demonstration Equipment
Demo Equip - Orig Cost 14,324 --
Demo Equip - Accum. Dep'n (1,366) --
--------------------------
Net Demonstration Equipment 12,958 --
--------------------------
TOTAL LONG TERM ASSETS 363,197 69,912
--------------------------
TOTAL ASSETS $ 535,117 $ 834,264
===========================
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 86,325 $--
Deferred revenue 100,000 --
---------------------------
TOTAL CURRENT LIABILITIES 186,325 --
---------------------------
Tax Liabilities
Payroll Taxes 2,512 --
GST Collected (2,928) --
---------------------------
TOTAL TAX LIABILITIES (416) --
---------------------------
TOTAL LIABILITIES 185,909 --
---------------------------
EQUITY
OWNER'S/SHAREHOLDER'S EQUITY
Common Stock 2,400 2,400
Additional Paid In Capital 947,600 899,800
---------- ----------------
TOTAL OWNER'S/SHAREHOLDER'S EQUITY 950,000 902,200
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (600,792) (67,936)
---------- ----------------
TOTAL EQUITY 349,208 834,264
---------- ----------------
TOTAL LIABILITY & EQUITY $ 535,117 $ 834,264
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DICOM IMAGING SYSTEMS, INC
CONSOLIDATED PROFIT & LOSS STATEMENT
For the period from March 17, 1999 to September 30, 1999
(Unaudited)
(Development Stage Company)
INCOME
Software/Support 55,134
Hardware 37,958
Miscellaneous 3,127
Freight Collected 2,758
Discounts (200)
TOTAL INCOME $ 98,777
COST OF SALES 31,592
GROSS PROFIT $ 67,185
---------
EXPENSES
GENERAL & ADMINISTRATIVE EXP
Salaries 79,902
Development 38,672
TOTAL GENERAL & ADMINISTRATIVE EXP $ 118,574
---------
START-UP EXPENSES
NASD Filing 138,545
Video 5,217
Master CD 4,900
Initial Mailing 38,220
Equipment 1,171
Tradeshow Booth 1,184
Tradeshow Costs 40,751
Web Design 7,753
Ads 40,522
Travel 44,525
Legal 23,011
Investor relations --
Start-up Overhead 372,976
Contingency 42,000
TOTAL START-UP EXPENSES 760,775
---------
OVERHEAD
Rent 5,524
Telephone 9,179
Office equipment lease 8,608
Consulting 8,083
Web Site Maintenance 2,969
Office Supplies 2,784
Miscellaneous 1,475
Printing 6,520
Courier 6,163
Mailings 10,409
Wages 25,288
Employer Payroll Tax Expense 1,723
Depreciation 9,452
Bank charges 822
TOTAL OVERHEAD $ 98,999
=========
TOTAL EXPENSES 978,348
---------
OPERATING PROFIT (911,163)
---------
INTEREST INCOME 999
FOREIGN EXCHANGE GAIN (LOSS) (128)
NET INCOME (LOSS) BEFORE INCOME TAXES $(910,292)
BENEFIT FROM INCOME TAXES 309,500
NET INCOME (LOSS) $(600,792)
=========
NET INCOME (LOSS) PER SHARE (0.24)
=========
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DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED PROFIT & LOSS STATEMENT
For the interim period from April 1, 1999 to September 30, 1999
(Unaudited)
(Development Stage Company)
INCOME
Software/Support 55,134
Hardware 37,958
Miscellaneous 3,127
Freight Collected 2,758
Discounts (200)
TOTAL INCOME $98,777
COST OF SALES 31,592
GROSS PROFIT $ 67,185
---------
EXPENSES
GENERAL & ADMINISTRATIVE EXP
Salaries 79,902
Development 38,672
TOTAL GENERAL & ADMINISTRATIVE EXP $ 118,574
---------
START-UP EXPENSES
NASD Filing 138,545
Video 5,217
Master CD 4,900
Initial Mailing 38,220
Equipment 499
Tradeshow Booth 1,184
Tradeshow Costs 39,376
Web Design 7,753
Ads 28,346
Travel 44,525
Legal 23,011
Investor relations --
Start-up Overhead 283,977
Contingency 42,000
TOTAL START-UP EXPENSES 657,553
---------
OVERHEAD
Rent 5,524
Telephone 9,179
Office equipment lease 8,608
Consulting 8,083
Web Site Maintenance 2,969
Office Supplies 2,784
Miscellaneous 1,475
Printing 6,520
Courier 6,163
Mailings 10,409
Wages 25,288
Employer Payroll Tax Expense 1,723
Depreciation 9,452
Bank charges 822
TOTAL OVERHEAD $ 98,999
---------
TOTAL EXPENSES 875,126
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OPERATING PROFIT (807,941)
---------
INTEREST INCOME 710
FOREIGN EXCHANGE GAIN (LOSS) (128)
NET INCOME (LOSS) BEFORE INCOME TAXES $(807,359)
BENEFIT FROM INCOME TAXES 274,503
NET INCOME (LOSS) $(532,856)
=========
NET INCOME (LOSS) PER SHARE (0.24)
=========
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DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED PROFIT & LOSS STATEMENT
For Months July - September 1999
(Unaudited)
(Development Stage Company)
INCOME
Software/Support 54,348
Hardware 37,274
Miscellaneous 3,127
Freight Collected 2,638
Discounts (200)
TOTAL INCOME $97,187
COST OF SALES 31,052
GROSS PROFIT $66,135
---------
EXPENSES
GENERAL & ADMINISTRATIVE EXP
Salaries 79,902
Development 33,792
TOTAL GENERAL & ADMINISTRATIVE EXP $ 113,694
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START-UP EXPENSES
NASD Filing 0
Video 3,423
Master CD 0
Initial Mailing 4,613
Equipment 0
Tradeshow Booth 0
Tradeshow Costs 30,124
Web Design 6,225
Ads 8,967
Travel 23,592
Legal 11,000
Investor relations 0
Start-up Overhead 6,617
Contingency 0
TOTAL START-UP EXPENSES 94,561
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OVERHEAD
Rent 5,524
Telephone 5,875
Office equipment lease 8,608
Consulting 8,083
Web Site Maintenance 2,969
Office Supplies 1,663
Miscellaneous 86
Printing 6,520
Courier 3,998
Mailings 10,409
Wages 18,550
Employer Payroll Tax Expense 1,270
Depreciation 4,616
Bank charges 822
TOTAL OVERHEAD $ 78,993
---------
TOTAL EXPENSES 287,248
---------
OPERATING PROFIT (221,113)
---------
INTEREST INCOME 710
FOREIGN EXCHANGE GAIN (LOSS) 71
---------
NET INCOME (LOSS) BEFORE INCOME TAXES $(220,332)
BENEFIT FROM INCOME TAXES 74,913
---------
NET INCOME (LOSS) $(145,419)
=========
NET INCOME (LOSS) PER SHARE (0.07)
=========
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DICOM IMAGING SYSTEMS, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the period from March 17, 1999 to September 30, 1999
(Unaudited)
(Development Stage Company)
(Deficit)
Accumulated
Additional During
Paid in Development
Common Stock Number of Shares Amount Capital Stage
- ----------------------------- ---------------- ------ ---------- -----
Issued for cash
March 17, 1999 1,400,000 $ 1,400 $ 803,300
Issued for licensing
and distribution agreement
March 31, 1999 1,000,000 $ 1,000 $ 96,500
(Net Loss) March 17, 1999
(Inception) to March 31, 1999 ($67,936)
---------- ----------- ----------- ---------
Balance March 31, 1999 2,400,000 $ 2,400 $ 899,800 ($67,936)
Additional paid in capital
received April 5, 1999 97,800
Share issue costs (50,000)
(Net Loss) April 1, 1999 (532,856)
to September 30, 1999
---------- ----------- ----------- ---------
Balance September 30, 1999 2,400,000 $ 2,400 $ 947,600 ($600,792)
---------- ----------- ----------- ---------
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DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from March 17, 1999 to September 30, 1999
(Unaudited)
(Development Stage Company)
CASH FLOWS FROM OPERATING ACTIVITIES
(Net loss) $(600,792)
Depreciation 9,452
Increase in deferred taxes (309,501)
Changes in non-cash working capital:
Increase in deferred revenue 100,000
Increase in accounts receivable (2,669)
Increase in prepaid expenses (21,947)
Increase in accounts payable 86,325
Decrease in tax liabilities (416)
----------
Net Cash (Used) In Operating Activities (739,548)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (63,148)
----------
CASH FLOW FROM FINANCING ACTIVITIES
Share issue costs (50,000)
Increase in short term loan to Dicom Software (66,093)
Receipt of Proceeds for Common Stock 2,400
Receipt of Additional Paid in Capital 997,600
----------
Net Cash Flow from Financing Activities 883,907
Net increase (decrease) in cash 81,211
Cash, March 17, 1999 --
----------
Cash, September 30, 1999 $ 81,211
==========
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DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the interim period from April 1, 1999 to September 30, 1999
(Unaudited)
(Development Stage Company)
CASH FLOWS FROM OPERATING ACTIVITIES
(Net loss) $(532,856)
Depreciation 9,453
Increase in deferred taxes (274,503)
Changes in non-cash working capital:
Increase in deferred revenue 100,000
Increase in accounts receivable (2,669)
Increase in prepaid expenses (21,947)
Increase in accounts payable 86,325
Decrease in tax liabilities (416)
----------
Net Cash (Used) In Operating Activities (636,613)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (28,235)
----------
CASH FLOW FROM FINANCING ACTIVITIES
Share issue costs (50,000)
Increase in short term loan to Dicom Software (66,093)
Receipt of Licensing Agreement 97,500
Receipt of Additional Paid in Capital 97,800
Receipt of Stock Subscription Receivable 443,950
----------
Net Cash Flow from Financing Activities 523,157
Net increase (decrease) in cash (141,691)
Cash, April 1, 1999 222,902
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Cash, September 30, 1999 $ 81,211
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DICOM IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For Months July - September 1999
(Unaudited)
(Development Stage Company)
CASH FLOWS FROM OPERATING ACTIVITIES
(Net loss) $(145,419)
Depreciation 4,616
Increase in deferred taxes (74,913)
Changes in non-cash working capital:
Increase in deferred revenue 100,000
Increase in accounts receivable (2,669)
Increase in prepaid expenses (21,947)
Increase in accounts payable 80,677
Decrease in tax liabilities (1,298)
----------
Net Cash (Used) In Operating Activities (60,953)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (4,043)
----------
CASH FLOW FROM FINANCING ACTIVITIES
Share issue costs (25,000)
Increase in short term loan to Dicom Software (11,581)
----------
Net Cash Flow from Financing Activities (36,581)
Net increase (decrease) in cash (101,577)
Cash July 1, 1999 182,788
----------
Cash, September 30, 1999 $ 81,211
==========
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DICOM IMAGING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
July 1 - September 31, 1999
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was incorporated March 17, 1999 under the laws of the State of
Nevada. The Company was organized to engage in any lawful activity. The Company
currently has limited operations and, in accordance with SFAS #7, is considered
a development stage company.
In March of 1999 the Company entered into a license and distribution agreement
with Torchmark Holdings to secure rights to image archiving and retrieval
software for use in dental diagnostic procedures and for other applications.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principals have been condensed or omitted pursuant to such rules and
regulations. However, in the opinion of management of the Company, the unaudited
consolidated financial statements include all adjustments, which consist only of
normal recurring accruals, necessary to present fairly the financial information
for such periods. The unauditied consolidated financial statements include the
financial information of the wholly owned subsidiary company, 527403 B. C. Ltd.
527402 B. C. Ltd. was incorporated in the Providence of British Columbia,
Canada, and is responsible for providing software support services to the
present company, DICOM Imaging Systems, Inc.
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 date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is recorded using the
straight-line method over the estimated useful life. Computer hardware and
equipment is depreciated over a period of three years.
INCOME TAXES
Income Taxes are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS #109)
"Accounting for Income Taxes." A deferred tax asset or liability is recorded for
all temporary differences between financial and tax reporting. Deferred tax
expense (benefit) results from the net change during the year of deferred tax
assets and liabilities.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
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NOTE 3 - INCOME TAXES
The company reported a net loss before taxes of $220,332 for the quarter ending
September 30, 1999. By applying the U.S. federal income tax rate of 34% to
pretax income, the company is increasing its deferred tax asset by $74,913 and
recording a tax benefit of same.
The deferred taxes are presented in the balance sheet as a long term asset.
At September 30, 1999 the Company has net operating loss carryfowards for
federal income tax purposes of $910,293, which are available to offset future
taxable income through 2019.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which the related temporary differences become deductible.
NOTE 4 - STOCKHOLDERS' EQUITY
COMMON STOCK
The authorized common stock of the Company consists of 50,000,000 shares with a
par value of $0.001 per share. Issued and outstanding common stock shares equal
to 2,400,000 were issued on March 31, 1999.
PREFERRED STOCK
The authorized preferred stock of the Company consists of 10,000,000 shares with
a par value of $0.001 per share. No preferred stock shares were issued and
outstanding at September 30, 1999.
NOTE 5 - REVENUE RECOGNITION
THE REVENUE OF THE AMENDED AND RESTATED LICENSE AGREEMENT IS CONTINGENT ON THE
COMPANY MEETING CERTAIN MILESTONES. THERE CAN BE NO ASSURANCE THAT SUCH
MILESTONES WILL BE MET. In July of 1999, Dicom had entered into a Software
Agreement with Knowledge Systems International ("Software Agreement") whereby
Knowledge Systems International would pay a License Fee of $400,000 for a
license to certain Dicom software. Knowledge Systems International breached this
Software Agreement in August, 1999 due to non-payment. The Licensee of the
Amended and Restated License Agreement desired to engage in a collaboration,
joint venture or equity arrangement with Dicom Imaging Systems, Inc. Upon
learning that Knowledge Systems International had breached its Software
Agreement with Dicom due to non-payment, the Licensee desired to negotiate a
License to assume some of the profits that Knowledge Systems International would
have earned under the Software Agreement. Dicom and Licensee negotiated a
License Agreement and then an Amended and Restated License Agreement, whereby
Licensee would earn up to $50,000 in royalties for a License to the Image
Explorer Software in exchange for payment of a License Fee of $600,000. Only
$100,000 of the License Fee has been paid to date. There are certain milestones
that must be reached in order for the remaining $500,000 to be paid. The first
Milestone is that Dicom must have its application to trade on the NASD OTC
Bulletin Board approved by January 31, 2000. In addition, Dicom has represented
to Licensee that there will be
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total sales of at least $400,000 of the Licensed Software by January 31, 2000,
total sales of at least $600,000 by March 31, 2000, total sales of at least
$800,000 by May 31, 2000 and total sales of $1,000,000 by June 30, 2000 ("Sales
Milestones"). If any of the Sales Milestones are not met, Licensee is entitled
to (1) cancel the License and (2) request a refund of License Fees paid to date,
less any paid Royalty Payments. Dicom must pay the Licensee 50% of its gross
revenue from the sale of the Image Explorer Software for the three year term of
the License, up to a maximum of the total of the License Payments plus $50,000.
While management anticipates that all of the milestones will be met, there can
be no assurance that this will be the case. Therefore, in accordance with
generally accepted accounting principals, we have not recognized revenue under
the license agreement. It was the intention of the parties that the milestones
would be waived, but there can be no assurance of the same. Therefore, we are
recognizing $100,000 of initial cash received as deferred revenue.
Item 2. Management's Plan of Operation over the twelve month period beginning
June 30, 1999
Dicom Imaging Systems, Inc., a Nevada Corporation ("Dicom" or "DIS" or
the "Company") is a development stage software provider to the dental industry
and associated groups. It is the plan of Dicom to capture market share of
imaging software in dentistry by producing and distributing, free of charge, an
imaging software application known as IMAGE EXPLORER AND IMAGE EDITOR ("Image
Explorer") to dentists, dental specialists, dental laboratories, dental
insurance companies, and educational facilities throughout North America. Dicom
requires registration of its Image Explorer product by its customers through a
telephone registration system. At the point of registration of IMAGE EXPLORER,
it is anticipated that Dicom representatives will market a series of value added
software modules, support services and select imaging hardware devices to its
software registrants.
The core Image Explorer product functions primarily as a means for
dental professionals to categorize, manage and manipulate patient images by
means of a visual interface. The value added software modules each provide
products to assist dental professionals with a specific area of image management
and manipulation, such as cosmetic whitening procedures on teeth. The value
added software modules can be added and integrated as dental professionals
become more familiar with the Dicom's Image Explorer technology. Dicom had not
yet commenced sales of its Image Explorer product at June 30, 1999. Sales of the
Image Explorer product were comennced in July, 1999.
Dicom's plan of operation over the next twelve months is to continue to
develop and improve the Software throughout the year, responding to customer
comments and requests and producing an updated version of the core product,
Image Explorer. Dicom intends to aggressively capture market share over the next
twelve months through attendance at nearly every significant dental tradeshow
held in Canada and the United States. We plan to staff our booths at these
tradeshows with Dicom personnel who can explain and market our product to the
dentists in attendance. In addition, Dr. Gane plans an aggressive lecture,
seminar campaign, where he will speak to audiences of dental professionals
throughout Canada about dental imaging in general and Image Explorer in
particular. Because Dr. Gane receives a number of invitations to speak
throughout the year to dental professionals eager to improve and develop their
practices, we feel that these events provide him with an opportunity to promote
Image Explorer throughout the year to a large number of dental professionals.
Dicom intends over the next twelve months to negotiate supply
relationships with most of the major dental product distributors in North
America and to greatly expand the number of distributors who stock the Dicom
product. Dicom has planned an aggressive advertising campaign in Dental Products
Report and other dental trade magazines to continue to promote Image Explorer
throughout the year to dental professionals.
Dicom intends to purchase the license rights to the medical version of
the Image Explorer product from Torchmark. Originally, Dicom had anticipated
purchasing and commencing development on the medical version of the Image
Explorer software in October, 1999. Presently, management anticipates that his
will occur by December, 1999. Management intends to spend
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the balance of the next twelve months developing and marketing the medical
version of Image Explorer to medical professionals.
Dicom intends to develop and enhance its web site over the next twelve
months and to drive traffic to the site by pursuing links with other dental
related sites and by purchasing banner advertisements on dental product sites.
Dicom is currently in discussions with various Internet consultants to add
multimedia and enhanced functionality to the web site, as well as improve
graphic design elements.
Dicom intends to streamline its customer support functions over the
next twelve months through extensive scripting of commonly experienced technical
and product usage problems as they are encountered by our customer support
staff. In addition, Dicom intends to begin its intensive telemarketing campaign
and to continue it throughout the next twelve months, with a goal of contacting
by telephone all leads generated by our presence at trade shows, Dr. Gane's
lectures, through our web site and through reader responses to our
advertisements in dental trade maganizes.
In addition to developing an upgraded version of the core Image
Explorer product during the next twelve months, Dicom intends to develop other
value-added software modules and other methods for enhancing its revenue stream,
including corporate partnering agreements and agreements to bundle the Image
Explorer core product with other manufacturer's hardware products.
Under the terms of Dicom's stock subscription agreements with its
common shareholders, Dicom is prohibited from raising additional capital through
the sale of new equity in the company or through the undertaking of any material
indebtedness without the consent of the shareholders. Dicom intends, however, to
obtain a waiver of this prohibition in November of 1999, at which point Dicom
intends to undertake a limited offering of its securities. Management has not
yet determined the terms or amount of such a potential offering.
Liquidity and Capital Resources
Dicom requires additional capital to conduct and expand its business.
Management intends to aggressively market large corporate transactions which
will involve substantial payments by large corporate licensors, which could
possibly be sufficient to meet Dicom's financial needs. Nevertheless, there can
be no assurance that this will happen. In the event that corporate transactions
are not sufficient, Dicom intends to conduct both private placements and
follow-on offerings of its common stock to raise funds for future growth. We
intend to finance our obligations under the revised license agreement out of the
appropriate percentage of sales.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Item 5. Other Information
In July of 1999, Dicom had entered into a Software Agreement with
Knowledge Systems International ("Software Agreement") whereby Knowledge Systems
International would pay a License Fee of $400,000 for a license to certain Dicom
software. Knowledge Systems International breached this Software Agreement in
August, 1999 due to non-payment. Dicom negotiated an Amended and Restated
License Agreement in September, 1999 with another party for a $600,000 license
fee. This license fee is contingent on Dicom meeting certain Milestones. The
first Milestone is that Dicom must have its application to trade on the NASD OTC
Bulletin Board approved by January 31, 2000. In addition, Dicom has represented
to Licensee that there will be total sales of at least $400,000 of the Licensed
Software by January 31, 2000, total sales of at least $600,000 by March 31,
1999, total sales of at least $800,000 by May 31, 1999 and total sales of
$1,000,000 by June 30, 1999 ("Sales Milestones"). If any of the Sales Milestones
are not met, Licensee is entitled to (1) cancel the License and (2) request a
refund of License Fees paid to date, less any paid Royalty Payments. Dicom must
pay the Licensee 50% of its gross revenue from the sale of the Image Explorer
Software for the three year term of the License, up to a maximum of the total of
the License Payments plus $50,000. While management anticipates that all of the
milestones will be met, there can be no assurance that this will be the case.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Amended and Restated License Agreement between Registrant and
Douglas Campbell effective September 29, 1999.
Exhibit 27.1 Financial Data Schedule
(b) Reports on 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
DICOM IMAGING SYSTEMS, INC.
(Registrant)
Date: NOVEMBER 7, 1999
By: /s/ David Gane
------------------------------
David Gane
President and Chief Executive Officer
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