-----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, O08wPlxBAOjvVZIYx2VlHJ2v401p4ffLbG9Up1BMj40yS0vckK3Q4kJmPXSCyr66 yAkrV2G2zYQNknKQ+xch0w== /in/edgar/work/0000950147-00-001532/0000950147-00-001532.txt : 20001006 0000950147-00-001532.hdr.sgml : 20001006 ACCESSION NUMBER: 0000950147-00-001532 CONFORMED SUBMISSION TYPE: 10KSB40/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20001005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIMENSIONAL VISIONS INC/ DE CENTRAL INDEX KEY: 0000836809 STANDARD INDUSTRIAL CLASSIFICATION: [2750 ] IRS NUMBER: 232517953 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB40/A SEC ACT: SEC FILE NUMBER: 001-10196 FILM NUMBER: 735450 BUSINESS ADDRESS: STREET 1: 2301 WEST DUNLAP STREET 2: SUITE 207 CITY: PHOENIX STATE: AZ ZIP: 85021 BUSINESS PHONE: 6029971990 MAIL ADDRESS: STREET 1: 8855 N. BLACK CANYON HWY STREET 2: STE 2000 CITY: PHOENIX STATE: AZ ZIP: 85021 10KSB40/A 1 0001.txt AMENDMENT NO. 1 TO FORM 10-KSB 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 ------------------------------- ---------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2301 W. Dunlap Avenue, Suite 207, Phoenix, Arizona 85021 - -------------------------------------------------- ---------- (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. 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. 2 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. 3 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. 4 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.
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 ------------- ------------- ------------- ------------- ------------- 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
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. 5 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 6 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 7 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. 8 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 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 $100,000 in the fiscal year ended June 30, 2000.
Annual Compensation Long Term Compensation ------------------------------------- --------------------------------------- Awards Payouts --------------------------- ---------- Other Restricted Securities Annual Stock Underlying LTIP All Other Year Salary($) Bonus($) Compensation($) Awards($) Options/SARs(#) Payouts($) Compensation($) ---- --------- -------- --------------- ---------- --------------- ---------- --------------- John D. Mcphilimy 1999 $89,250 $ 0 $ 0 $0 -- $0 $0 2000 $90,000 $7,500 $ 0 $0 $0 $0
10 OPTIONS/SAR GRANTS IN THE FISCAL YEAR 2000
INDIVIDUAL GRANTS ----------------------------------------------------------------- Number of % of Total Securities Option/SARs Underlying Granted to Option/SARs Employees in Exercise or Base Expiration Name Year Granted(#) Fiscal Year Price ($/Share) Date ---- ---- ----------- ----------- --------------- ---- 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
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 - ---------- (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 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 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 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 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 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 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 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 DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY CONSOLIDATED BALANCE SHEET JUNE 30, 2000
ASSETS 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 ============
See notes to consolidated financial statements. F-6 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 DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED JUNE 30, 2000 AND 1999
Preferred Stock Common Stock ($.001 Par Value) Additional ($.001 Par Value) Additional ------------------ Paid-in ------------------ Paid-in Shares Amount Capital Shares Amount Capital Deficit Total ------ ------ ------- ------ ------ ------- ------- ----- 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) ======= ====== ========= ========= ====== =========== ============ ===========
F-8 DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED JUNE 30, 2000 AND 1999
Preferred Stock Common Stock ($.001 Par Value) Additional ($.001 Par Value) Additional ------------------ Paid-in ------------------ Paid-in Shares Amount Capital Shares Amount Capital Deficit Total ------ ------ ------- ------ ------ ------- ------- ----- 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 $75,000 into 12,000 shares of the Company's common stock (7,500) (8) (74,992) 12,000 12 74,988 -- --
F-9
Preferred Stock Common Stock ($.001 Par Value) Additional ($.001 Par Value) Additional ----------------- Paid-in ----------------- Paid-in Shares Amount Capital Shares Amount Capital Deficit Total ------ ------ ------- ------ ------ ------- ------- ----- 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 $.25 per share commencing December 2000 through February 2005 for employee incentives and consultants -- -- -- -- -- -- -- --
F-10
Preferred Stock Common Stock ($.001 Par Value) Additional ($.001 Par Value) Additional ------------------ Paid-in ------------------ Paid-in Shares Amount Capital Shares Amount Capital Deficit Total ------ ------ ------- ------ ------ ------- ------- ----- 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 ========= ====== ========== ========= ====== =========== ============ ===========
F-11 DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999 ----------- ----------- 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) ----------- -----------
F-12 DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999 ----------- ----------- 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 =========== ===========
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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 Schedule IV DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY SCHEDULE IV - PROPERTY AND EQUIPMENT(1)
Other Balance at Changes - Beginning Additions Add Balance at Classification of Period at Cost Retirements(2) (Deduct)(3) End of Period -------------- --------- ------- -------------- ----------- ------------- 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 ======== ======== ======== ======== ========
- ---------- (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 Schedule V DIMENSIONAL VISIONS INCORPORATED AND SUBSIDIARY SCHEDULE V - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Other Balance at Changes - Beginning Additions Add Balance at Classification of Period at Cost Retirements(1) (Deduct) End of Period -------------- --------- ------- -------------- -------- ------------- 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 ======== ======== ======== ======== ========
- ---------- (1) Represents accumulated depreciation and amortization written off as a result of abandonment or sale F-32 -----END PRIVACY-ENHANCED MESSAGE-----