-----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, RLGXG8SVmtNOn0Zq5FsUY8q1HkcY+6XktwH5VbMKqYvzh8sH0Hw3y6K2/+YyDs9P T9WKoJRocb40lNij12+XNg== 0000891020-98-001242.txt : 19980812 0000891020-98-001242.hdr.sgml : 19980812 ACCESSION NUMBER: 0000891020-98-001242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA DIMENSIONS INC CENTRAL INDEX KEY: 0000026990 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 060852458 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04748 FILM NUMBER: 98682700 BUSINESS ADDRESS: STREET 1: ONE BELLEVUE CENTER STREET 2: 411 108TH AVENUE NE SUITE 2100 CITY: BELLEVUE STATE: WA ZIP: 98004 BUSINESS PHONE: 4256881000 MAIL ADDRESS: STREET 1: ONE BELLEVUE CENTER STREET 2: 411 108TH AVENUE NE SUITE 2100 CITY: BELLEVUE STATE: WA ZIP: 98004 10-Q 1 FORM 10-Q 1 Page 1 of 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-4748 Data Dimensions, Inc. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 06-0852458 (NAME OR OTHER JURISDICTION (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) One Bellevue Center, 411 - 108th Avenue NE, Suite 2100, Bellevue, WA 98004 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (425) 688-1000 Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date Common Stock: 12,988,455 shares as of July 31, 1998 2 DATA DIMENSIONS, INC. Index
Page Number ------ PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets at June 30,1998 and December 31, 1997 3 Supplemental Condensed Consolidated Balance Sheets at June 30, 1998 and December 31,1997 4 Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 1998 and 1997 5 Supplemental Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 1998 and 1997 6 Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 1998 and 1997 7 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and reports on Form 8-K 13
SIGNATURE Page 2 3 DATA DIMENSIONS, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
June 30, December 31, 1998 1997 -------- -------- Current assets: Cash and cash equivalents $ 5,571 $ 4,694 Investment securities available for sale -- 986 Accounts receivable, net: Trade 22,256 16,806 Other 176 336 Prepaid and other current assets 1,614 937 Deferred income taxes -- 247 -------- -------- Total current assets 29,617 24,006 Equipment and furniture, net 4,349 3,107 Investment in product development, net 1,350 1,635 Other assets 841 1,613 -------- -------- Total assets $ 36,157 $ 30,361 ======== ======== Current liabilities: Accounts payable $ 4,683 $ 3,148 Advance billings 252 1,431 Accrued compensation and commissions 4,377 3,128 Other accrued liabilities 1,768 1,790 Dividends payable 689 1,000 Current portion of capital lease obligations 259 287 Deferred income taxes 1,591 -- -------- -------- Total current liabilities 13,619 10,784 -------- -------- Capital lease obligations, net of current portion 380 483 -------- -------- Commitments and contingencies (Note 3 ) Stockholders' equity: Common stock, $.001 par value; 20,000 shares authorized; 12,876 and 12,542 outstanding 22 22 Additional paid in capital 22,348 22,026 Treasury stock, at cost, 112 and 108 shares (3,034) (2,971) Retained earnings (deficit) 2,946 (73) Cumulative translation adjustment (124) 90 -------- -------- Total stockholders' equity 22,158 19,094 -------- -------- Total liabilities and stockholders' equity $ 36,157 $ 30,361 ======== ========
The accompanying notes are an integral part of these financial statements. Page 3 4 DATA DIMENSIONS, INC. SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS (Giving Effect to Pooling-of-Interests Business Combination with ST Labs, Inc. - See Note 2) (In thousands) (Unaudited)
June 30, December 31, 1998 1997 -------- -------- Current assets: Cash and cash equivalents $ 5,571 $ 4,734 Investment securities available for sale -- 986 Accounts receivable, net 24,406 18,730 Prepaid and other current assets 1,694 1,024 Deferred income taxes -- 247 -------- -------- Total current assets 31,671 25,721 Equipment and furniture, net 5,803 4,668 Investment in product development, net 1,350 1,635 Other assets 924 1,696 -------- -------- Total assets $ 39,748 $ 33,720 ======== ======== Current liabilities: Line of credit borrowings $ 1,330 $ 1,200 Accounts payable 6,031 3,916 Advanced billings 252 1,431 Accrued compensation and commissions 4,377 3,478 Other accrued liabilities 3,013 2,528 Dividends payable 689 1,000 Current portion of capital lease obligations 259 287 Deferred income taxes 1,591 -- Current portion of notes payable 1,397 1,397 -------- -------- Total current liabilities 18,939 15,237 Notes payable, net of current portion 402 491 Capital lease obligations, net of current portion 380 483 Other noncurrent liabilities 135 166 -------- -------- Total Liabilities 19,856 16,377 -------- -------- Commitments and contingencies (Note 3) Stockholders' equity: Common stock and additional paid in stock 23,745 23,323 Treasury stock, at cost (3,034) (2,971) Retained earnings (deficit) (695) (3,099) Cumulative translation adjustment (124) 90 -------- -------- Total stockholders' equity 19,892 17,343 -------- -------- Total liabilities and stockholders' equity $ 39,748 $ 33,720 ======== ========
The accompanying notes are an integral part of these financial statements Page 4 5 CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Month Period Six Month Period Ended June 30, Ended June 30, --------------------------- -------------------------- 1998 1997 1998 1997 ------------ ----------- ---------- ------------ Revenue Knowledge Consulting $20,255 $ 7,637 $35,325 $13,447 Information Services 2,456 1,914 4,386 3,733 Knowledge Transfer 738 722 1,355 989 International 197 677 495 1,353 ------- ------- ------- ------- Total revenue 23,646 10,950 41,561 19,522 Direct costs 13,727 5,553 23,726 10,451 ------- ------- ------- ------- Gross margin 9,919 5,397 17,835 9,071 General, administrative and selling expenses 6,731 4,005 13,068 7,171 ------- ------- ------- ------- Income from operations 3,188 1,392 4,767 1,900 Other income 58 120 101 267 ------- ------- ------- ------- Earnings before income tax 3,246 1,512 4,868 2,167 Income tax provision 1,225 510 1,850 740 ------- ------- ------- ------- Net income $ 2,021 $ 1,002 $ 3,018 $ 1,427 ======= ======= ======= ======= Net income per share-basic $ 0.16 $ 0.08 $ 0.24 $ 0.12 ======= ======= ======= ======= Net income per share-diluted $ 0.16 $ 0.08 $ 0.23 $ 0.11 ======= ======= ======= ======= Weighted average shares outstanding-basic 12,864 12,231 12,763 12,115 ======= ======= ======= ======= Weighted average shares outstanding-diluted 13,030 12,584 13,033 12,462 ======= ======= ======= =======
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited)
Three Month Period Six Month Period Ended June 30, Ended June 30, ------------------------- ------------------------- 1998 1997 1998 1997 ------- ------- ------- ------- Net Income Other comprehensive income - foreign currency $ 2,021 $ 1,002 $ 3,018 $ 1,427 translation adjustments, net of deferred income taxes of $143 and $81 (235) -- (133) -- ------- ------- ------- ------- Comprehensive income $ 1,786 $ 1,002 $ 2,885 $ 1,427 ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements Page 5 6 DATA DIMENSIONS, INC. SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Giving Effect to Pooling-of-Interests Business Combination with ST Labs, Inc. - See Note 2) (In thousands, except per share data) (Unaudited)
Three Month Period Six Month Period Ended June 30, Ended June 30, --------------------------- --------------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenue Knowledge Consulting $ 23,740 $ 11,128 $ 42,125 $ 19,773 Information Services 2,456 1,914 4,386 3,733 Knowledge Transfer 738 722 1,355 989 International 197 677 495 1,353 -------- -------- -------- -------- Total revenue 27,131 14,441 48,361 25,848 Direct costs 15,651 7,582 27,498 14,281 -------- -------- -------- -------- Gross margin 11,480 6,859 20,863 11,567 General, administrative and selling expenses 8,538 5,976 16,394 10,544 -------- -------- -------- -------- Income from operations 2,942 883 4,469 1,023 Other income (expense) (187) 12 (215) 109 -------- -------- -------- -------- Earnings before income tax 2,755 895 4,254 1,132 Income tax provision 1,225 510 1,850 740 -------- -------- -------- -------- Net income $ 1,530 $ 385 $ 2,404 $ 392 ======== ======== ======== ======== Net income per share-basic $ 0.11 $ 0.03 $ 0.18 $ 0.03 ======== ======== ======== ======== Net income per share-diluted $ 0.11 $ 0.03 $ 0.18 $ 0.03 ======== ======== ======== ======== Weighted average shares outstanding-basic 13,372 12,566 13,372 12,566 ======== ======== ======== ======== Weighted average shares outstanding-diluted 13,587 12,985 13,587 12,985 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements Page 6 7 DATA DIMENSIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Six Month Period Ended June 30, -------------------------------- 1998 1997 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,018 $ 1,427 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 1,141 326 Deferred income tax provision 1,850 655 Changes in certain operating assets and liabilities Decrease (increase) in accounts receivable (5,450) (3,466) Increase in prepaid and other current assets (169) (779) Increase in accounts payable 1,535 125 Decrease in advanced billings (1,179) (821) Increase in accrued compensation and commissions 1,249 578 Other 114 (215) ------- ------- Net cash provided (used) by operating activities 2,109 (2,170) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Maturities and sales of investments 986 5,492 Purchases of equipment and furniture (1,949) (788) Investment in product development (48) (1,012) ------- ------- Net cash provided (used) by investing activities (1,011) 3,692 ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of capital lease obligations (131) -- Distribution to shareholder (300) (114) Proceeds from issuance of common stock 210 411 ------- ------- Net cash provided by financing activities (221) 297 ------- ------- Net increase in cash and cash equivalents 877 1,819 Cash and cash equivalents, beginning of period 4,694 2,617 ------- ------- Cash and cash equivalents, end of period $ 5,571 $ 4,436 ======= =======
The accompanying notes are an integral part of these financial statements. Page 7 8 DATA DIMENSIONS, INC. Notes to Condensed Consolidated Financial Statements NOTE 1: Basis of Presentation The financial statements present the consolidated financial position and results of operations of Data Dimensions, Inc. and its subsidiaries, ("Data Dimensions" or the "Company"). In November 1997, the Company acquired Pyramid Information Services, Inc. in a business combination accounted for as a pooling-of-interests. The historical financial statements for periods prior to consummation of the business combination have been restated as though the companies had been combined for all periods presented. The financial information included herein for the six month periods ended June 30, 1998 and 1997 is unaudited; however, such information reflects all adjustments consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 1997 is derived from the Company's audited consolidated financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto, which are included in the Company's 1997 Annual Report on Form 10-KSB. Earnings per share for the 1998 first and second quarters do not add to the six months earnings per share amount due to rounding. The results of operations for the 1998 interim periods presented are not necessarily indicative of the results to be expected for the full year. NOTE 2: Acquisition of ST Labs, Inc. In July 1998, the Company entered into a definitive agreement with ST Labs, Inc. ("ST Labs") and certain of its shareholders, pursuant to which, in August 1998, the Company acquired all of the outstanding common stock of ST Labs in exchange for shares of Data Dimensions common stock having a value of approximately $9.7 million, such value as determined by the average closing market price of Company common stock for a period preceding the close of the business combination. As a result of the transaction, ST Labs, a Bellevue, Washington based company which provides information technology testing related services, became a wholly-owned subsidiary of the Company. The business combination will be accounted for as a "pooling-of-interests" for accounting and financial reporting purposes. The pooling-of-interests method of accounting is intended to present as a single interest two or more common shareholder interests which were previously independent. Consequently, the historical financial statements for periods prior to the consummation of the combination will be restated as though the companies had been combined for all periods presented. The accompanying supplemental financial statements give effect to the business combination of the Company and ST Labs. These supplemental results of operations are not necessarily indicative of results to be expected in the future. The calculation of supplemental net income per common and common equivalent share for each period presented reflects the issuance of shares of Company common stock in exchange for all of the outstanding shares of ST Labs common stock. The number of shares included in the basic earnings per share computation has been determined utilizing a price of $14.38 per share and the exchange ratio of Company shares for ST Labs shares as set forth in the business combination merger agreement (the "Exchange Ratio") based upon the actual weighted average number of ST Labs common shares outstanding during the period presented. The computation of diluted earnings per share is similar to the computation of basic earnings per share, except that the number of shares utilized as the denominator is increased to include the number of ST labs additional shares that would have been outstanding if dilutive common shares had been issued. Outstanding options and warrants have been considered utilizing the Treasury stock method in calculating dilutive earnings per share. All fees and expenses related to the business combination and to the consolidation of the combining companies will be expensed as required under the pooling-of-interests accounting method. These expenses have not been reflected in the supplemental financial statements, but will be reflected in the statement of operations of the Company for the three month period ending September 30, 1998. Such fees and expenses are presently estimated to approximate $750,000, comprised of direct transaction costs and the estimated expense of consolidating and restructuring certain functions. The actual costs of the business combination could vary significantly from those estimated. Page 8 9 DATA DIMENSIONS, INC. Notes to Condensed Consolidated Financial Statements (Continued) NOTE 2: (Continued) The following pro forma supplemental consolidated condensed balance sheet information reflects adjustments for the aforementioned estimated fees and expenses, as if the business combination had been consummated on June 30, 1998 (in thousands):
Pro forma Pro forma Supplemental Adjustments Supplemental Current assets $ 31,671 $ 31,671 Non-current assets 8,077 8,077 -------- -------- -------- Total $ 39,748 $ $ 39,748 ======== ======== ======== Current liabilities $ 18,939 $ 750 $ 19,689 Non-current liabilities 917 917 -------- -------- -------- Total liabilities 19,856 750 20,606 Stockholders' equity 19,892 (750) 19,142 -------- -------- -------- Total $ 39,748 $ -- $ 39,748 ======== ======== ========
NOTE 3: Stockholders' Equity During the six months ended June 30, 1998, the Company issued approximately 336,000 shares of its common stock pursuant to exercise of outstanding options and in connection therewith received cash proceeds of approximately $210,000. NOTE 4: Contingencies The Company is from time to time involved in various claims and legal proceedings of a nature considered by Company management to be routine and incidental to its business. In the opinion of Company management, after consultation with outside legal counsel, the ultimate disposition of such matters is not expected to have a material adverse effect on the Company's financial position, results of operations or liquidity. Page 9 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the discussion and analysis presented in the Company's Annual Report on Form 10-KSB. Results of Operations Comparison of the Three Month Periods Ended June 30, 1998 and 1997 Revenue for the three months ended June 30, 1998 was $23.6 million, more than double the revenue for the comparative prior year period. Revenue from Knowledge Consulting increased approximately $12.6 million, or 165% over the comparative prior year period and a 34% increase over the first quarter of 1998, primarily due to a heightened awareness of the millennium problem and demand for millennium services. Knowledge Consulting continues to represent a dominant portion of revenues, contributing 86% of total second quarter revenues. Revenues from Information Services increased approximately $542,000 or 28% over the comparative prior year period, reflecting new Year 2000 testing contracts. Revenues from Knowledge Transfer, which include sales of Ardes 2k and Interactive Vendor Review were $734,000 during the three months ended June 30, 1998, a 2% increase over the comparable 1997 period. International revenue was $200,000 for the three months ended June 30, 1998, a decrease from $677,000 for the comparable prior year period due primarily to approximately $500,000 of license and other one-time or non-recurring fees received from licensees in the 1997 period. Gross margin for the three months ended June 30, 1998 was $9.9 million, compared to $5.4 million for the three months ended June 30, 1997, an increase of $4.5 million, or 84%. Gross margin as a percentage of revenue for the three month period ended June 30, 1998 was 42% compared to 49% for the comparative 1997 period. This percentage decrease was primarily due to an increase in code remediation work performed rather than portfolio analysis and higher gross margins realized by International during 1997 as a result of one-time fees. General, administrative and selling expenses for the three months ended June 30, 1998 were approximately $6.7 million compared to approximately $4 million for the comparative prior year, an increase of $2.7 million. General, administrative and selling expenses increased in dollar terms as a result of the increased investment in infrastructure to support the Company's rapid growth, but decreased as a percentage of revenues to 28% for the 1998 second quarter as compared to 35% during the immediately preceding quarter and 37% during the comparable prior year quarter. At June 30, 1998, the Company had 605 employees, a net increase of 273 since June 30, 1997. This growth resulted in increased costs of facilities and related services, salaries, continued recruiting, training, travel and other staffing costs. The Company believes that with increased demand for it services and products, further increases in support staff and other related costs will continue. It is expected that these costs as a percent of revenue will continue to gradually decrease as compared to prior year periods. Comparison of the Six Month Periods Ended June 30, 1998 and 1997 Revenue for the six months ended June 30, 1998 was $41.6 million, more than double revenue for the comparative prior year period. Revenue from Knowledge Consulting increased approximately $21.9 million, or 163% over the comparative prior year period, primarily due to a heightened awareness of the millennium problem and demand for millennium services. Knowledge Consulting continues to represent a dominant portion of revenues, contributing 85% of total first and second quarter revenues. Revenues from Information Services increased $653,000 or 17%, and were primarily outsourcing-related. Revenues from Knowledge Transfer, which include sales of Ardes 2k and Interactive Vendor Review, were $1.4 million during the six months ended June 30, 1998, a 37% increase over the comparable 1997 period. International revenue was $499,000 for the six months ended June 30, 1998, a decrease from $1.4 million for the comparable prior year period due primarily to approximately $1 million of license and other one-time or non-recurring fees received from licensees in the 1997 period. Gross margin for the six months ended June 30, 1998 was $17.8 million, compared to approximately $9 million for the six months ended June 30, 1997, an increase of $8.8 million, or 97%. Gross margin as a percentage of revenue for the six month period ended June 30, 1998 was 43% compared to 46% for the comparative 1997 period. This percentage decrease was primarily due to higher gross margins realized by International during 1997. The first and second quarter's 1998 gross margin is also a significant improvement from the 37% gross margin reported in the fourth quarter of 1997. Page 10 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation (Continued) Comparison of the Six Month Periods Ended June 30, 1998 and 1997 (Continued) General, administrative and selling expenses for the six months ended June 30, 1998 were approximately $13.1 million compared to $7.2 million for the comparative prior year, an increase of $5.9 million. General, administrative and selling expenses increased in dollar terms as a result of the increased investment in infrastructure to support the Company's rapid growth, but decreased as a percentage of revenues to 31% for the 1998 first half as compared to 37% during the immediately preceding six months and the comparable prior year period. Liquidity and Capital Resources Net cash provided by operating activities was approximately $2.1 million in the six months ended June 30, 1998 as compared to $2.2 million used in 1997. Earnings before deferred taxes, depreciation and amortization approximated $6.0 million in 1998, an increase of $3.6 million, or 150%, over 1997. Cash provided by net income before non-cash charges for depreciation, amortization and deferred taxes, and increases in accounts payable were offset partially by increases in accounts receivable and advanced billings. Improvements in billing and collection processes contributed to the decrease in days sales outstanding from 107 days for the fourth quarter of 1997 to 85 days for the six months ended June 30, 1998. Net cash used by investing activities was approximately $1.0 million during the six months ended June 30,1998 as compared to net cash provided of $3.7 million during the comparative 1997 period. Cash provided by investing activities resulted from proceeds from the maturity and sale of investments. Cash used by investing activities resulted from the purchase of equipment and furniture and investment in product development. As of June 30, 1998, the Company had working capital of approximately $16 million and cash and cash equivalents of $5.6 million. As described in note 2 to the financial statements, in August 1998 the Company acquired ST Labs. At June 30, 1998 ST Labs had total liabilities of approximately $5.8 million, including bank debt of approximately $2.9 million. The Company intends to refinance ST Labs bank debt and advance sufficient cash to ST Labs to satisfy its current cash requirements. In connection therewith and to fund closing costs of the transaction, the Company has increased its existing bank line of credit from $5 million to $10 million on terms substantially similar to its current facility. Prior to the ST Labs acquisition, the Company had not borrowed any amounts pursuant to this line of credit . The Company has no significant commitments for capital expenditures and believes that based upon its current operating plan, cash generated from operations and its existing cash and investments, as supplemented by line of credit borrowings, will be adequate to finance its current working capital requirements. Year 2000 Compliance The Company has evaluated the cost necessary to make its computer systems Year 2000 compliant. Most of these costs are expected to be incurred during 1998 and are not expected to have a material impact on the Company's cash flows, results of operations or financial condition. Forward-Looking Statements and Associated Risks The foregoing and the discussion and analysis presented in the Company's 1997 Annual Report on Form 10-KSB contains certain forward-looking statements, including, among others (i) the potential extent of the millennium problem and the anticipated growth in the millennium consulting market; (ii) anticipated trends in the Company's financial condition and results of operations (including expected changes in the Company's gross margin and general, administrative and selling expenses); (iii) the Company's business strategies for expanding its presence in the computer services industry (including opening new sales offices, updating its millennium consulting process, expanding its licensing arrangements and positioning itself for non-millennium and post-2000 markets); and (iv) the Company's ability to distinguish itself from its current and future competitors. These forward-looking statements are based largely on the Company's current expectations and are subject to a number of risks and uncertainties, some of which are described in the Issues and Uncertainties section of the discussion and analysis included in the Company's 1997 Annual Report on Form 10-KSB. The Company does not provide forecasts of future financial performances. While Company management is optimistic about the Company's Page 11 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation (Continued) Forward-Looking Statements and Associated Risks (Continued) long-term prospects, these issues and uncertainties, among others, should be considered. Actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include (i) the shortage of reliable market data regarding the millennium consulting market; (ii) changes in external competitive market conditions that might impact trends in the Company's results of operations; (iii) unanticipated working capital or other cash requirements; (iv) uncertainty regarding the Company's ability to profitably market and sell its Knowledge Transfer products; (v) changes in the Company's business strategies or an inability to execute its strategies due to unanticipated changes in the millennium consulting market; (vi) various competitive factors that may prevent the Company from competing successfully in the marketplace, and (vii) unanticipated financial requirements that could arise as a result of the Company's acquisition of ST Labs, Inc. In view of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-KSB will, in fact, transpire. Page 12 13 Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders. The Annual meeting of the shareholders of the Company was held on May 18, 1998, at which the shareholders elected the two nominees for director to the Board of Directors of the Company, as follows:
Number of Shares Number of Shares Name Voting For Withheld Voting ---- ---------------- ---------------- Robert T. Knight 11,939,184 259,991 Larry W. Martin 11,938,512 260,663
The terms of Lucie J. Fjeldstad and Thomas W. Fife as directors continued after the annual meeting of shareholders. Item 6 - Exhibits and reports on Form 8-K. (a) The following exhibits are filed herewith or incorporated by reference, and this list is intended to constitute the exhibit index: Exhibit No. 2.1 Agreement and Plan of Reorganization by and among Data Dimensions, Inc., DS Acquisition Corporation, Robert Arnold, Jr., Tye V. Minckler, and ST Labs, Inc. dated July 28, 1998. (Incorporated by reference to the Company's August 7, 1998 Current Report on Form 8-K) 4.1 Stock Restriction and Registration Rights Agreement. (Incorporated by reference to the Company's August 7, 1998 Current Report on Form 8-K) 11. Statement of calculations of net income per share 27. Financial Data Schedule (b) There were no reports on Form 8-K filed during the quarter ended June 30, 1998. The Company filed a Current Report on Form 8-K dated August 7, 1998 regarding the acquisition of ST Labs, Inc. Page 13 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Data Dimensions, Inc. (Registrant) /s/ LARRY W. MARTIN ---------------------------------------------------------- August 11, 1998 Larry W. Martin, President and Chief Executive Officer Date /s/ GORDON A. GARDINER --------------------------------------------------------- August 11, 1998 Gordon A. Gardiner, Executive Vice President, Chief Date Financial Officer and Secretary (Principal Financial and Accounting Officer). Page 14 EX-11 2 STATEMENT OF CALCULATIONS OF NET INCOME PER SHARE 1 EXHIBIT 11 DATA DIMENSIONS, INC. CALCULATIONS OF NET INCOME PER SHARE (In thousands, except per share data) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, ------------------------ ------------------------ 1998 1997 1998 1997 ------- ------- ------- ------- Weighted average shares outstanding 12,864 12,231 12,763 12,115 Dilutive common stock options using the treasury stock method 166 353 270 347 ------- ------- ------- ------- Total shares used in per diluted share calculations 13,030 12,584 13,033 12,462 ======= ======= ======= ======= Net income $ 2,021 $ 1,002 $ 3,018 $ 1,427 ======= ======= ======= ======= Net income per share - basic $ 0.16 $ 0.08 $ 0.24 $ 0.12 ======= ======= ======= ======= Net income per share - diluted $ 0.16 $ 0.08 $ 0.23 $ 0.11 ======= ======= ======= =======
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 APR-01-1998 JUN-30-1998 5,571 0 23,142 710 0 29,617 6,305 1,956 36,157 13,619 0 0 0 19,336 2,822 36,157 23,646 23,646 0 13,727 6,731 0 0 3,246 1,225 2,021 0 0 0 2,021 0.16 0.16
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