-----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, LO92lF9Cn/WTIbe13lwmO/gFpohzo9a9iL4T+kUps+xFH5AIVW26LYn+mi7+r7iN kjpRucquX2rf5Ojxmc0qwQ== /in/edgar/work/20000814/0000891020-00-001503/0000891020-00-001503.txt : 20000921 0000891020-00-001503.hdr.sgml : 20000921 ACCESSION NUMBER: 0000891020-00-001503 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA DIMENSIONS INC CENTRAL INDEX KEY: 0000026990 STANDARD INDUSTRIAL CLASSIFICATION: [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: 699018 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 e10-q.txt FORM 10-Q 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, 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 0-4748 -------------------- Data Dimensions, Inc. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 06-0852458 - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) Sterling Plaza, 3rd Floor, 3535 Factoria Boulevard SE, Bellevue, WA 98006 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (425) 688-1000 ---------------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such 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: 13,560,972 shares as of July 31, 2000 ---------------------------------------------- 2 DATA DIMENSIONS, INC. Index
Page Number ------ PART I - FINANCIAL INFORMATION. Item 1. Consolidated Financial Statements Consolidated Balance Sheets at June 30, 2000 (unaudited) and December 31, 1999. 3 Consolidated Statements of Operations for the three and six month periods ended June 30, 2000 and 1999 (unaudited). 4 Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2000 and 1999 (unaudited). 4 Consolidated Statements of Cash Flows for the six month period ended June 30, 2000 and 1999 (unaudited). 5 Notes to Consolidated Financial Statements (unaudited). 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7 Item 3. Quantitative and Qualitative Disclosure About Market Risk 9 PART II - OTHER INFORMATION. Item 4. Submission of Matters to a Vote of Security Holders. 9 Item 6. Exhibits and Reports on Form 8-K. 10 SIGNATURES 10
Page 2 3 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements DATA DIMENSIONS, INC. CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, December 31, 2000 1999 ---- ---- (Unaudited) Current assets: Cash and cash equivalents $ 8,234 $ 10,390 Accounts receivable, net 9,304 16,278 Income tax receivable 3,508 2,551 Prepaid and other current assets 2,476 2,393 Deferred income taxes 555 352 -------- -------- Total current assets 24,077 31,964 Equipment and furniture, net 5,899 7,039 Other assets 848 635 -------- -------- Total assets $ 30,824 $ 39,638 ======== ======== Current liabilities: Accounts payable $ 1,503 $ 1,433 Accrued compensation and commissions 1,700 3,938 Other accrued liabilities 1,143 1,774 Capital lease obligations, current 1,923 1,965 -------- -------- Total current liabilities 6,269 9,110 Capital lease obligations, net of current portion 979 1,941 Other noncurrent obligations 181 181 -------- -------- Total liabilities 7,429 11,232 -------- -------- Stockholders' equity: Common stock, $.001 par value; 20,000 shares authorized; 13,669 and 13,665 issued 14 14 Additional paid in capital 24,733 24,679 Treasury stock, at cost, 112 shares in 2000 and 1999 (3,034) (3,034) Cumulative comprehensive loss (253) (200) Retained earnings 1,935 6,947 -------- -------- Total stockholders' equity 23,395 28,406 -------- -------- Total liabilities and stockholders' equity $ 30,824 $ 39,638 ======== ========
The accompanying notes are an integral part of these financial statements. Page 3 4 DATA DIMENSIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Month Six Month Periods Periods Ended June 30, Ended June 30, ---------------------- ---------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenue Professional services $ 8,249 $ 28,938 $ 15,874 $ 57,211 Managed services 2,170 3,341 4,704 7,286 -------- -------- -------- -------- Total revenue 10,419 32,279 20,578 64,497 Direct costs Professional services 5,637 15,901 10,935 30,449 Managed services 2,283 2,732 4,873 5,922 -------- -------- -------- -------- Total direct costs 7,920 18,633 15,808 36,371 -------- -------- -------- -------- Gross margin 2,499 13,646 4,770 28,126 General, administrative and selling expenses 7,007 11,207 13,120 23,081 Non-recurring item -- -- (136) -- -------- -------- -------- -------- Income (loss) from operations (4,508) 2,439 (8,214) 5,045 Other income (expense), net 24 (93) (2) (171) -------- -------- -------- -------- Income (loss) before income tax (4,484) 2,346 (8,216) 4,874 Income tax provision (benefit) (1,749) 915 (3,204) 1,901 -------- -------- -------- -------- Net income (loss) $ (2,735) $ 1,431 $ (5,012) $ 2,973 ======== ======== ======== ======== Net income (loss) per share-basic $ (0.20) $ 0.11 $ (0.37) $ 0.22 ======== ======== ======== ======== Net income (loss) per share-diluted $ (0.20) $ 0.11 $ (0.37) $ 0.22 ======== ======== ======== ======== Weighted average shares outstanding-basic 13,561 13,533 13,558 13,531 ======== ======== ======== ======== Weighted average shares outstanding-diluted 13,561 13,553 13,558 13,569 ======== ======== ======== ======== CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) Net Income (loss) $ (2,735) $ 1,431 $ (5,012) $ 2,973 Other comprehensive income (loss) - foreign currency translation adjustments (28) (36) (53) (81) -------- -------- -------- -------- Comprehensive income (loss) $ (2,763) $ 1,395 $ (5,065) $ 2,892 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. Page 4 5 DATA DIMENSIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Month Periods Ended June 30, -------------------------------- 2000 1999 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (5,012) $ 2,973 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 2,764 3,055 Deferred income tax (benefit) (203) (729) Other non cash items (133) -- Changes in certain operating assets and liabilities Accounts receivable 6,040 4,754 Income tax receivable (957) -- Prepaid and other assets (146) 75 Accounts payable 70 (177) Accrued compensation and commissions (2,238) 1,163 Income taxes payable -- (5,770) Other accrued liabilities (495) (300) Other (40) (453) -------- ------- Net cash provided by (used in) operating activities (350) 4,591 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment and furniture (848) (1,076) Proceeds from sale of equipment and furniture 36 -- -------- ------- Net cash used in investing activities (812) (1,076) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of capital lease obligations (1,004) (614) Distribution to shareholder -- (229) Proceeds from issuance of common stock 10 16 -------- ------- Net cash used in financing activities (994) (827) -------- ------- Net increase (decrease) in cash and cash equivalents (2,156) 2,688 Cash and cash equivalents, beginning of period 10,390 776 -------- ------- Cash and cash equivalents, end of period $ 8,234 $ 3,464 ======== ======= Cash paid during the period for: Interest $ 145 $ 105 Income taxes $ 74 $ 6,114 Non-cash investing and financing activities: Equipment acquired under capital lease $ -- $ 473
The accompanying notes are an integral part of these financial statements. Page 5 6 DATA DIMENSIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: Business and Basis of Presentation Business Data Dimensions, Inc. and its subsidiaries ("Data Dimensions" or the "Company") provide a range of information technology ("IT") services collectively referred to as Enterprise Integration Solutions ("EIS"). These services include IT consulting, managed services, and quality assurance and testing. From 1991 through 1999, the Company derived the majority of its revenue by providing solutions specifically related to the millennium date change ("Y2K"). Basis of Presentation The consolidated financial statements present the consolidated financial position and results of operations of the Company in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The financial information included herein for the three and six month periods ended June 30, 2000 and 1999 is unaudited; however, such information reflects all adjustments consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations, comprehensive income and cash flows for the interim periods. The financial information as of December 31, 1999 is derived from the Company's audited consolidated financial statements. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto, which are included in the Company's 1999 Annual Report on Form 10-K. The results of operations for the 2000 interim period presented are not necessarily indicative of the results to be expected for the year ending December 31, 2000 or any future interim period, and the Company makes no representation related thereto. Certain amounts have been reclassified in the prior period financial statements to conform with the current year presentations. NOTE 2: Commitments and Contingencies The Company is from time to time involved in various claims and legal proceedings of a nature considered by Company management to be routine and incidental to its business. In the opinion of Company management, after consultation with outside legal counsel, the ultimate disposition of such matters is not expected to have a material adverse effect on the Company's financial position, results of operations or liquidity. NOTE 3: Reconciliation of Earnings Per Share Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of common stock issuable upon exercise of stock options using the treasury stock method. Page 6 7 NOTE 3: Reconciliation of Earnings Per Share (Continued) The following provides a reconciliation of the numerators and denominators of the basic and diluted per share computations (in thousands, except per share data):
Three Month Periods Six Month Periods Ended June 30, Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Weighted average shares outstanding 13,561 13,533 13,558 13,531 Dilutive common stock options using the treasury stock method -- 20 -- 38 -------- ------- -------- ------- Weighted average diluted shares outstanding 13,561 13,553 13,558 13,569 ======== ======= ======== ======= Net income (loss) $ (2,735) $ 1,431 $ (5,012) $ 2,973 Earnings (loss) per share - basic $ (0.20) $ 0.11 $ (0.37) $ 0.22 Earnings (loss) per share - diluted $ (0.20) $ 0.11 $ (0.37) $ 0.22
For the three month periods ended June 30, 2000 and June 30, 1999 respectively, options to purchase 1,822 and 1,147 common shares at prices of $0.25-$34.125 and $4.25-$34.75 were excluded from the computation of diluted earnings (loss) per share because inclusion would have had an anti-dilutive effect. Likewise, for the six month periods ended June 30, 2000 and June 30, 1999 respectively, options to purchase 1,877 and 1,075 common shares at prices of $0.25-$34.125 and $7.74-$34.75 were excluded from the computation of diluted earnings (loss) per share. 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 1999 Annual Report on Form 10-K. Results of Operations Quarter Ended June 30, 2000 The Company has shifted its business from principally providing services related to Y2K remediation to providing a range of information technology (IT) professional and managed services. Revenue of $10.4 million in the second quarter ended June 30, 2000 declined 68 percent from the revenue of $32.3 million in the quarter ended June 30, 1999. The decrease in revenue was primarily due to revenue from new services not compensating for the decline in Y2K revenue from the previous year period. Y2K revenue represented approximately 75 percent of the Company's revenue in the second quarter of 1999, and was not material in the second quarter of 2000. The decline in revenue was most evident in the Company's professional services business, which decreased 71 percent to $8.2 million due largely to a decline in field consulting projects, offset to some extent by an increase in testing and applications outsourcing. Managed services revenue of $2.2 million decreased 35 percent due to an absence of Y2K testing contracts. The Company expects Y2K revenue to be immaterial in future periods and that future revenue growth will come from testing and quality assurance services, application outsourcing, and consulting services focused on e-Business services. Direct costs decreased 57 percent in the quarter ended June 30, 2000 from the quarter ended June 30, 1999 in response to reduced revenue levels. However, this decrease did not fully compensate for the reduced revenue as gross margin declined 82 percent in the quarter ended June 30, 2000 compared to the prior year period. Gross margin as a percentage of revenue of 24 percent in the quarter decreased from 42 percent in the comparable prior year period. Professional services gross margin declined to 32 percent in the period ended June 30, 2000 from 45 percent in the prior year period. This decline was the result of Page 7 8 lower utilization rates for the Company's field consulting workforce, partially offset by higher utilization rates in the Company's Test Centers division. Managed services gross margin declined to negative 5 percent from 18 percent in the prior year. Managed services gross margins are primarily determined by revenue levels relative to largely fixed costs associated with personnel and equipment in the Company's data center operations. The reduced revenue levels, without a corresponding reduction in data center costs, resulted in the negative gross margin in the period. Selling, General and Administrative expenses decreased 37 percent in the quarter ended June 30, 2000 compared to the prior year period. The decrease was primarily due to reduced employee related costs. As a percent of revenue, general, administrative and selling costs increased from 35 percent to 67 percent compared to last year. Other income (expense) recorded in 2000 and 1999 consists primarily of the interest component of capital leases, offset by interest income and other non-operating items. The Company's annual effective tax rate was 39 percent in both the quarter ended June 30, 2000 and in the quarter ended June 30, 1999. Six Months Ended June 30, 2000 Revenue of $20.6 million in the six months ended June 30, 2000 declined 68 percent from the revenue of $64.5 million in the six months ended June 30, 1999. As mentioned above, the decrease in revenue resulted primarily from the shift in the Company's business from Y2K remediation services to providing a range of IT professional and managed services. Approximately 5 percent of total revenue in the six months ended June 30, 2000 was related to Year 2000 remediation compared to approximately 77 percent in the comparable prior year period. The Company's professional services business decreased 72 percent to $15.9 million, due largely to a decline in field consulting projects, offset to some extent by an increase in testing and applications outsourcing. Managed services revenue of $4.7 million decreased 35 percent due to an absence of Y2K testing contracts. Direct costs decreased 57 percent in the six months ended June 30, 2000 from the six months ended June 30, 1999 in response to reduced revenue levels. This decrease did not fully compensate for the reduced revenue as gross margin declined 83 percent in the six months ended June 30, 2000 compared to the prior year period. Gross margin as a percentage of revenue decreased from 44 percent in the comparable prior year period, to 23 percent. Professional services gross margin declined to 31 percent in the six months ended June 30, 2000 from 47 percent in the prior year period. This decline was the result of lower utilization rates for the Company's field consulting workforce, partially offset by higher utilization rates in the Company's Test Centers division. Managed services gross margin declined to negative 4 percent from 19 percent in the prior year. Selling, General and Administrative expenses decreased 43 percent in the six months ended June 30, 2000 compared to the prior year period. The decrease was primarily due to reduced employee related costs. As a percent of revenue, general, administrative and selling costs increased from 36 percent to 64 percent compared to last year. The non-recurring item of $136,000 represents a reversal of the unused portion of the restructuring charge incurred in the third quarter of 1999. The number of people receiving severance was less than originally expected primarily due to the number of voluntary terminations. Other income (expense) recorded in 2000 and 1999 consists primarily of the interest component of capital leases, offset by interest income and other non-operating items. The Company's annual effective tax rate was 39 percent in both the six month periods ended June 30, 2000 and June 30, 1999. Page 8 9 Liquidity and Capital Resources At June 30, 2000, the Company had $17.8 million of working capital, of which $8.2 million was cash and cash equivalents. Cash flow from operations was positively impacted by a reduction in accounts receivable of $6.0 million from December 31, 1999, offset in part by the Company's operating losses. In addition, approximately $900,000 of accounts receivable were reclassified to an interest bearing note for one client. Cash and cash equivalents is expected to decline during the year to fund operating losses and working capital requirements. The Company is working to improve cash flows from operating activities by improving profitability and improving days sales outstanding. The Company is currently negotiating a working capital line of credit with a financial institution. Should the Company fail to successfully negotiate this line of credit, other sources of liquidity, including debt and equity financing, would be sought. The absence of a line of credit or alternative debt or equity financing in conjunction with continued operating losses could have a material impact on the Company's ability to fund operations. Forward-Looking Statements and Associated Risks The foregoing and the discussion and analysis presented in the Company's 1999 Annual Report on Form 10K contains certain forward-looking statements, including, among others, (i) 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); (ii) the Company's business strategies for expanding its presence in the computer services industry (including expanding its testing and e-Business offerings, the ability to secure technology partnerships and capturing additional outsourcing clients); and (iii) 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. Actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include (i) changes in external competitive market conditions that might impact trends in the Company's results of operations; (ii) the absence of long-term contracts; (iii) the Company's ability to fund continued operating losses and unanticipated working capital or other cash requirements; (iv) the Company's ability to attract and retain qualified technical personnel; (v) changes in the Company's business strategies or an inability to execute its strategies to transition from consulting on the Year 2000 problem to supplying Enterprise Integration Solutions (EIS); and (vi) various competitive factors that may prevent the Company from competing successfully in the marketplace. In view of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K will, in fact, transpire. Item 3. Quantitative and Qualitative Disclosure About Market Risk Not Applicable. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the May 16, 2000 Annual Meeting of Stockholders, the following proposal was voted on by stockholders: 1. Election of Directors Peter A. Allen and Lucie J. Fjeldstad were elected directors of the Company to a three-year term, which expires in the year 2003. Thomas W. Fife, Robert T. Knight and Dennis W. Walsh continue as directors of the Company. Page 9 10 Votes for election of Peter A. Allen as director: For: 11,928,437 Withheld: 88,011 Votes for election of Lucie J. Fjeldstad as director: For: 11,926,067 Withheld: 90,381 Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as a part of this report, and this list is intended to constitute the exhibit index:
Exhibit No. ----------- 27. Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter ended June 30, 2000. 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) August 11, 2000 /s/ Laurence C. Leslie --------------- --------------------------------------- Date Laurence C. Leslie, Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer.) Page 10 EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 APR-01-2000 JUN-30-2000 8,234 0 10,281 977 0 24,077 15,166 9,267 30,824 6,269 0 0 0 14 23,381 30,824 10,419 10,419 7,920 7,920 6,823 92 68 (4,484) (1,749) (2,735) 0 0 0 (2,735) (0.20) (0.20)
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