-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M44mK08zC+zkX8HclS/Wmzta+c7DitP8DRDtXdiacaeWbA9hYpCheF3wXVBrJpg1 S6LeLygdgqBN3dgno2CNHA== 0000891020-99-000855.txt : 19990517 0000891020-99-000855.hdr.sgml : 19990517 ACCESSION NUMBER: 0000891020-99-000855 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA DIMENSIONS INC CENTRAL INDEX KEY: 0000026990 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 060852458 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04748 FILM NUMBER: 99622347 BUSINESS ADDRESS: STREET 1: ONE BELLEVUE CENTER STREET 2: 411 108TH AVENUE NE SUITE 2100 CITY: BELLEVUE STATE: WA ZIP: 98004 BUSINESS PHONE: 4256881000 MAIL ADDRESS: STREET 1: ONE BELLEVUE CENTER STREET 2: 411 108TH AVENUE NE SUITE 2100 CITY: BELLEVUE STATE: WA ZIP: 98004 10-Q 1 FORM 10-Q FOR PERIOD ENDED MARCH 31, 1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 quarterly period ended March 31, 1999 ------------------------------------------------- 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 0-4748 -------------------------------- Data Dimensions, Inc. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 06-0852458 - -------------------------------------------------------------------------------- (NAME OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) One Bellevue Center, 411 - 108th Avenue NE, Suite 2100, Bellevue, WA 98004 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (425) 688-1000 ----------------------------- Indicate by check 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 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 practicable date Common Stock: 13,641,463 shares as of April 30, 1999 - -------------------------------------------------------------------------------- Page 1 of 10 2 DATA DIMENSIONS, INC. Index
Page Number ------ PART I - FINANCIAL INFORMATION. Item 1. Financial Statements Consolidated Balance Sheets at March 31, 1999 (unaudited) and December 31, 1998. 3 Consolidated Statements of Operations for the three month periods ended March 31, 1999 and 1998 (unaudited). 4 Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 1999 and 1998 (unaudited). 4 Consolidated Statements of Cash Flows for the three month periods ended March 31, 1999 and 1998 (unaudited). 5 Notes to Consolidated Financial Statements. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7 Item 3. Quantitative and Qualitative Disclosure About Market Risk 9 PART II - OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K. 9 SIGNATURES 10
Page 2 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements DATA DIMENSIONS, INC. CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, December 31, 1999 1998 ------------ ------------ (unaudited) Current assets: Cash and cash equivalents $ 105 $ 776 Accounts receivable, net 34,941 36,876 Prepaid and other current assets 2,499 2,850 Deferred income taxes 1,260 1,140 ------------ ------------ Total current assets 38,805 41,642 Equipment and furniture, net 8,205 8,467 Investment in product development, net 806 1,016 Other assets 788 812 ------------ ------------ Total assets $ 48,604 $ 51,937 ============ ============ Current liabilities: Current debt $ 800 $ -- Accounts payable 4,389 4,571 Advance billings 196 300 Accrued compensation and commissions 6,167 6,157 Other accrued liabilities 3,101 3,067 Dividends payable -- 229 Current portion of capital lease obligations 1,263 1,161 Income taxes payable 891 5,997 Deferred income taxes 797 797 ------------ ------------ Total current liabilities 17,604 22,279 Capital lease obligations, net of current portion 1,778 1,976 Other long term liabilities 183 180 ------------ ------------ Total liabilities 19,565 24,435 ------------ ------------ Commitments and contingencies (Note 2 ) Stockholders' equity: Common stock, $.001 par value; 20,000 shares authorized; 13,532 and 13,521 outstanding 13 13 Additional paid in capital 24,579 24,539 Treasury stock, at cost, 112 shares in 1999 and 1998 (3,034) (3,034) Retained earnings 7,646 6,104 Cumulative comprehensive loss (165) (120) ------------ ------------ Total stockholders' equity 29,039 27,502 ------------ ------------ Total liabilities and stockholders' equity $ 48,604 $ 51,937 ============ ============
The accompanying notes are an integral part of these financial statements. Page 3 4 DATA DIMENSIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Month Periods Ended March 31, ------------------------------------ 1999 1998 ---------- ---------- Revenue Field consulting $ 24,087 $ 15,126 Outsourcing services 4,226 1,930 Test centers 3,163 3,315 Other 742 859 ---------- ---------- Total revenue 32,218 21,230 Direct costs 19,512 11,847 ---------- ---------- Gross margin 12,706 9,383 General, administrative and selling expenses 10,100 7,856 ---------- ---------- Income from operations 2,606 1,527 Other income (expense) (78) (29) ---------- ---------- Income before income tax 2,528 1,498 Income tax provision 986 625 ---------- ---------- Net income $ 1,542 $ 873 ========== ========== Earnings per share-basic $ 0.11 $ 0.07 ========== ========== Earnings per share-diluted $ 0.11 $ 0.07 ========== ========== Weighted average shares outstanding-basic 13,530 13,170 ========== ========== Weighted average shares outstanding-diluted 13,557 13,408 ========== ==========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) Net Income $ 1,542 $ 873 Other comprehensive income (loss) - foreign currency translation adjustments (45) 102 ---------- ---------- Comprehensive income $ 1,497 $ 975 ========== ==========
The accompanying notes are an integral part of these financial statements. Page 4 5 DATA DIMENSIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Month Periods Ended March 31, ------------------------------------ 1999 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,542 $ 873 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 1,478 887 Deferred income tax provision (benefit) (120) 625 Other non cash items 24 -- Changes in certain operating assets and liabilities Decrease in accounts receivable 1,935 816 Decrease in prepaid and other assets 96 20 Decrease in accounts payable (182) (650) Decrease in advanced billings (104) (1,199) Increase (decrease) in accrued compensation and commissions 10 (383) Decrease in income taxes payable (5,106) -- Other 252 (122) ------------ ------------ Net cash provided (used) by operating activities (175) 867 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Maturities and sales of investments -- 986 Purchases of equipment and furniture (802) (1,037) Investment in product development -- (26) ------------ ------------ Net cash used by investing activities (802) (77) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short term debt 800 247 Payment of capital lease obligations (281) (70) Distribution to shareholder (229) -- Repayment of note payable -- (44) Proceeds from issuance of common stock 16 241 ------------ ------------ Net cash provided by financing activities 306 374 ------------ ------------ Net increase (decrease) in cash and cash equivalents (671) 1,164 Cash and cash equivalents, beginning of period 776 4,733 ------------ ------------ Cash and cash equivalents, end of period $ 105 $ 5,897 ============ ============ Cash paid during the period for: Interest $ 105 $ 118 Income taxes $ 6,114 $ -- Non-cash investing and financing activities: Equipment acquired under capital lease $ 185 $ --
The accompanying notes are an integral part of these financial statements. Page 5 6 DATA DIMENSIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: Basis of Presentation The consolidated financial statements present the consolidated financial position and results of operations of Data Dimensions, Inc. and its subsidiaries, ("Data Dimensions" or the "Company") in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. In August 1998, the Company acquired ST Labs, Inc. in a business combination accounted for as a pooling of interests. The historical financial statements for periods prior to consummation of the business combination have been restated as though the companies had been combined for all periods presented. The financial information included herein for the three month periods ended March 31, 1999 and 1998 is unaudited; however, such information reflects all adjustments consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations, comprehensive income and cash flows for the interim periods. The financial information as of December 31, 1998 is derived from the Company's audited consolidated financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto, which are included in the Company's 1998 Annual Report on Form 10-K. The results of operations for the 1999 interim period presented are not necessarily indicative of the results to be expected for the year ended December 31, 1999 or any future interim period, and the Company makes no representation related thereto. Certain amounts have been reclassified in the prior period financial statements to conform with the current year presentations. NOTE 2: Contingencies The Company is from time to time involved in various claims and legal proceedings of a nature considered by Company management to be routine and incidental to its business. In the opinion of Company management, after consultation with outside legal counsel, the ultimate disposition of such matters is not expected to have a material adverse effect on the Company's financial position, results of operations or liquidity. NOTE 3: Reconciliation of Earnings Per Share Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of common stock issuable upon exercise of stock options using the treasury stock method. The following provides a reconciliation of the numerators and denominators of the basic and diluted per share computations:
Three Months Ended March 31, ----------------------------- 1999 1998 ------------ ------------ Weighted average shares outstanding -- Basic 13,530 13,170 Dilutive common stock options using the treasury stock method 27 238 ----------------------------- Weighted average shares outstanding -- Diluted 13,557 13,408 ============================= Net income $ 1,542 $ 873 ============================= Earnings per share - basic $ 0.11 $ 0.07 ============================= Earnings per share - diluted $ 0.11 $ 0.07 =============================
Page 6 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the discussion and analysis presented in the Company's 1998 Annual Report on Form 10-K. Results of Operations Revenue of $32.2 million in the quarter ended March 31, 1999 increased 52 percent over the revenue of $21.2 million in the quarter ended March 31, 1998. In the first quarter of 1999, the Company re-organized its operations to better align with the market segments that it serves. As a result, revenue is now being reported in four segments; field consulting, outsourcing services, test centers and other. Field consulting, which consists of time billed by consultants, increased 59 percent over the first quarter of 1998 and accounted for 75 percent of revenue in the first quarter of 1999. Outsourcing services, which consists of computer hardware and application outsourcing, increased 119 percent and accounted for 13 percent of revenue. Test centers, which consists of testing services, quality assurance and training, decreased 5 percent from the first quarter of 1998 and accounted for 10 percent of revenue. Other includes product sales and international license royalties, which declined 14 percent from the quarter ended March 31, 1998. Approximately 80 percent of the revenue in the quarter ended March 31, 1999 was related to Year 2000 remediation. Direct costs increased 65 percent in the quarter ended March 31, 1999 over the quarter ended March 31, 1998. This resulted in gross margin, as a percent of revenue, decreasing from 44 percent in the quarter ended March 31, 1998 to 39 percent in the quarter ended March 31, 1999. The increase in direct costs was related to growth in outsourcing services where the gross margin is typically lower than the other areas. In addition, in 1999, subcontractors, which typically generate lower gross margins than employees of the Company, were used significantly more than in 1998 to support the level of field consulting business. Subcontractors were used to supplement specific skills and to support projects where permanent employees had not yet been hired. General, administrative and selling costs increased 29 percent in the quarter ended March 31, 1999 over the quarter ended March 31, 1998. Some of the reasons for the increase were higher marketing costs, internal training costs and an increase in the number of employees. As a percent of revenue, general, administrative and selling costs decreased from 37 percent to 31 percent compared to last year. Although the Company continues to invest in the infrastructure to support the Company's business, it is doing so at a slower rate than the growth in revenue. The Company's annual effective tax rate for the quarter ended March 31, 1999 was 39.0 percent compared to 41.7 percent for the quarter ended March 31, 1998. The improvement in the tax rate is due to the utilization of net operating loss carryforwards in the current year. Liquidity and Capital Resources The Company utilized its line of credit during the quarter to fund a significant federal income tax payment. The borrowing was paid down to $800,000 at the end of the quarter. Accounts receivable decreased $1.9 million and the days sales outstanding (DSO) decreased from 105 days in the fourth quarter of 1998 to 98 days in the first quarter of 1999. Working capital increased $1.8 million, primarily as a result of paying the federal tax liability. The Company anticipates that it will be able to meet its cash requirements through cash generated by operations and occasional, short term use of its line of credit. Year 2000 Compliance The Year 2000 issue is the result of computer programs that were written using two digits rather than four to identify the applicable year. Any of the Company's computer equipment, software and devices with embedded technology that are time-sensitive may mistakenly identify a date field using "00" as the year 1900, rather than the year 2000. Page 7 8 State of Readiness The Company provides Year 2000 consulting services to Fortune 500 companies and government agencies and is employing the same methods and processes to complete its own internal Year 2000 project that it provides to its customers. The Company has established a Year 2000 task force, comprised of members representing the different business operations of the Company, to assess and remediate the impact of the Year 2000 on its IT and non-IT systems, material third party relationships, and service and product offerings. As identified by the task force, the Year 2000 issues facing Data Dimensions that may have a material impact on its ability to continue its business practices as usual through the change of the century include: internal business systems; internet and intranet service; telecommunications; power; and the compliance and readiness of the Company's third party suppliers, vendors, and customers. The task force has divided the Company's Year 2000 project into three major phases: (1) assessment and planning; (2) implementation; and (3) verification and contingency planning. The Company is currently in the implementation phase of the project. To date, this has not revealed any information which indicates that the magnitude of the Company's Year 2000 problem is material. During the implementation phase of the project, the Company will replace obsolete systems and update (or repair) the hardware, applications and data so they are Year 2000 compliant. During the verification and contingency planning phase of the project, the Company will perform acceptance testing and review the results to determine that the updated applications are ready to return to production as well as remove any unused and outdated hardware and software, and migrate the various systems to production status. Based on information compiled to date, the Company expects to substantially complete its compliance project, as outlined above, by mid-1999. In addition to its own compliance efforts, the Company is conducting an assessment of the third parties with which it has material relationships to determine if they are Year 2000 compliant. The Company has contacted its key vendors and suppliers by the distribution of questionnaires. A majority of the vendors and suppliers have responded to the questionnaire with assurance that they will be Year 2000 compliant. The Company is in the process of developing contingency plans for those vendors and suppliers that will not be fully Year 2000 compliant. Prior to the start of the Company's Year 2000 project, implementation of a new enterprise-wide integrated accounting package to provide for the financial needs of the organization was completed. This software has been warranted by the vendor to be Year 2000 compliant. Similarly, the operating system used by Data Dimensions Information Services, Inc., the Company's subsidiary which outsources mainframe computer processing services, also has been warranted by the vendor to be Year 2000 compliant. Finally, the Company has replaced its phone and voicemail systems with new, Year 2000-compliant systems to better provide for the expanding communication needs of the organization. Costs to Address Year 2000 Issues The total estimated cost of the project is approximately $1.5 million. These costs consist primarily of the cost of labor needed to complete the Company's readiness and compliance project. The approximate labor cost during 1998 was $450,000 with the remainder to be incurred in 1999. The decision by the Company to acquire new accounting and phone software and equipment, and the timing thereof, arose in the ordinary course of the growth of the Company, and is not considered a cost associated with the Year 2000 issue. Risks of Year 2000 Issues The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. If such failures occur, the Company's results of operations, liquidity, and financial condition could be materially and adversely affected and the Company may be required to incur unanticipated expenses to remedy any problems not addressed by the Company's compliance efforts. Additionally, if any of the Company's material suppliers or vendors are not fully Year 2000 compliant, it is possible that a system failure or miscalculations causing disruptions in the Company's operations or potential problems with its product and service offerings could result. Page 8 9 Contingency Plans Part of the Company's Year 2000 project includes the preparation of contingency plans. The Company anticipates completion of its contingency plans by mid-1999. Forward-Looking Statements and Associated Risks The foregoing and the discussion and analysis presented in the Company's 1998 Annual Report in Form 10-K contains certain forward-looking statements, including, among others (i) the potential extent of the millennium problem and the anticipated growth in the millennium consulting market; (ii) anticipated trends in the Company's financial condition and results of operations (including expected changes in the Company's gross margin and general, administrative and selling expenses); (iii) the Company's business strategies for expanding its presence in the computer services industry and positioning itself for non-millennium and post-2000 markets; and (iv) the Company's ability to distinguish itself from its current and future competitors. These forward-looking statements are based largely on the Company's current expectations and are subject to a number of risks and uncertainties, some of which are described in the Issues and Uncertainties section of the discussion and analysis included in the Company's 1998 Annual Report on Form 10-K. The Company does not provide forecasts of future financial performances. While Company management is optimistic about the Company's long-term prospects, these issues and uncertainties, among others, should be considered. Actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include (i) the shortage of reliable market data regarding the millennium consulting market; (ii) changes in external competitive market conditions that might impact trends in the Company's results of operations; (iii) unanticipated working capital or other cash requirements; (iv) the Company's ability to profitably market and sell its Knowledge Transfer products; (v) changes in the Company's business strategies or an inability to execute its strategies due to unanticipated changes in the millennium consulting market; and (vi) various competitive factors that may prevent the Company from competing successfully in the marketplace. In view of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K will, in fact, transpire. Item 3. Quantitative and Qualitative Disclosure About Market Risk Not Applicable. PART II - OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K (a) The following exhibits are filed as a part of this report, and this list is intended to constitute the exhibit index: Exhibit No. 27. Financial Data Schedule (b) There were no reports on Form 8-K filed during the quarter ended March 31, 1999. Page 9 10 SIGNATURE 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. Data Dimensions, Inc. (Registrant) May 13, 1999 /s/ Gordon A. Gardiner ------------ ---------------------------------------------------- Date Gordon A. Gardiner, Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer.) Page 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 105 0 36,467 1,526 0 38,805 13,994 5,789 48,604 17,604 0 0 0 21,558 7,481 48,604 32,218 32,218 19,512 19,512 10,100 23 102 2,528 986 1,542 0 0 0 1,542 0.11 0.11
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