-----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, D0A+VzUwnjYQDw/RCZ/HKv736hMvJu5s8U72hgKdGSnP1O5itkQhq4nyDGsnY19o xcta3GXTcyQ4s+EgwwugZQ== 0001047469-98-006321.txt : 19980218 0001047469-98-006321.hdr.sgml : 19980218 ACCESSION NUMBER: 0001047469-98-006321 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL DIMENSIONS INC CENTRAL INDEX KEY: 0000822874 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 521139951 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 814-00145 FILM NUMBER: 98540706 BUSINESS ADDRESS: STREET 1: TWO APPLETREE SQ STREET 2: STE 335 CITY: BLOOMINGTON STATE: MN ZIP: 55425 BUSINESS PHONE: 6128543007 MAIL ADDRESS: STREET 1: TWO APPLETREE SQUARE STREET 2: STE 335 CITY: BLOOMINGTON STATE: MN ZIP: 55425 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 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: 000-22721 CAPITAL DIMENSIONS, INC. (Exact name of registrant as specified in its charter) Minnesota 52-1139951 (State or other jurisdiction of (I. R. S. Employer Identification No.) incorporation or organization) 7831 Glenroy Road, Suite 480, Minneapolis, MN 55439-3132 (Address of principal executive offices) (Zip Code) (612) 831-2025 (Registrant's telephone number, including area code) Two Appletree Square, Suite 335, Bloomington, MN 55425 (Former name, former address and former fiscal year, if changed since last report) 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. [ X ] Yes [ ] No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: As of December 31, 1997, the Company had outstanding 1,725,438 shares of Common Stock, no par value per share. TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION: Item 1. Condensed Consolidated Financial Statements (Unaudited): 3 Condensed Consolidated Statements of Operations Three Months ended December 31, 1996 and 1997 and Six Months ended December 31, 1996 and 1997 3 Condensed Consolidated Balance Sheets June 30, 1997 and December 31, 1997 4 Condensed Consolidated Statements of Cash Flows Six months ended December 31, 1996 and 1997 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 PART II. OTHER INFORMATION 10
2 PART I.-- FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CAPITAL DIMENSIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Six Months Ended December 31, Ended December 31, ------------------ ------------------ 1996 1997 1996 1997 ---- ---- ---- ---- (Dollars in thousands, except per share data) Interest income $529 $465 $1,022 $945 Operating expenses: Interest expense 93 246 176 502 General and administrative expense 218 301 437 619 Offering costs - 253 - 253 Other operating expense 15 (13) 16 15 --------- --------- --------- --------- Total operating expenses 326 787 629 1,389 --------- --------- --------- --------- Net operating income (loss) 203 (322) 393 (444) Gains on investments in small business concerns: Realized 119 87 119 87 Unrealized 18 (87) 18 124 --------- --------- --------- --------- Income (loss) before income taxes 340 (322) 530 (233) Income taxes 139 - 217 - --------- --------- --------- --------- Net income (loss) 201 (322) 313 (233) Dividends on preferred stock to SBA 30 - 60 - --------- --------- --------- --------- Net income (loss) applicable to common stock $ 171 $ (322) $ 253 $ (233) --------- --------- --------- --------- --------- --------- --------- --------- Basic earnings per common share $ .11 $ (.19) $ .16 $ (.14) --------- --------- --------- --------- --------- --------- --------- --------- Diluted earnings per common and common equivalent share $ .10 $ (.19) $ .15 $ (.14) --------- --------- --------- --------- --------- --------- --------- --------- Weighted average common shares outstanding 1,586,601 1,725,438 1,579,599 1,719,939 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average common and common equivalent shares outstanding 1,732,619 1,725,438 1,732,234 1,719,939 --------- --------- --------- --------- --------- --------- --------- ---------
See notes to condensed consolidated financial statements. 3 CAPITAL DIMENSIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31, -------- ------------ 1997 1997 ---- ---- (Dollars in thousands) ASSETS: Investments in small business concerns at fair value (note 3) Stocks $ 7,621 $ 7,490 Debt securities 13,285 12,084 Loans 3,766 4,956 -------- -------- Total investments in small business concerns 24,672 24,530 Cash and cash equivalents 4,424 4,137 Other assets 1,192 1,182 -------- -------- Total assets $ 30,288 $ 29,849 -------- -------- -------- -------- LIABILITIES and STOCKHOLDERS' EQUITY: SBA financing $ 12,154 $ 11,986 Other liabilities 712 519 -------- -------- Total liabilities 12,866 12,505 STOCKHOLDERS' EQUITY: Liquidating interest under repurchase agreement 2,525 2,066 Common stock 1,446 1,502 Additional paid-in capital 8,572 9,129 Retained earnings 4,879 4,647 -------- -------- Total stockholders' equity 17,422 17,344 -------- -------- Total liabilities and stockholders' equity $ 30,288 $ 29,849 -------- -------- -------- --------
See notes to condensed consolidated financial statements. 4 CAPITAL DIMENSIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended December 31, ------------------ 1996 1997 ---- ---- (Dollars in thousands) Net cash (used by) provided by operating activities $ (431) $ 388 Cash flow from investing activities: Investments in small business concerns (2,180) (1,750) Collections on debt securities and loans 756 1,292 -------- -------- Total cash used in investing activities (1,424) (458) Cash flow from financing activities: Proceeds from SBA note payable 5,301 - Payments on note payable to SBA (252) (273) Issuance of common stock 8 56 Dividends paid on SBA 4% redeemable preferred stock (66) - Redemption of SBA 4% redeemable preferred stock (3,000) - -------- -------- Total cash provided by (used in) financing activities 1,991 (217) Net increase (decrease) in cash and cash equivalents 136 (287) Cash and cash equivalents at beginning of period 3,878 4,424 -------- -------- Cash and cash equivalents at end of period $ 4,014 $ 4,137 -------- -------- -------- --------
See notes to condensed consolidated financial statements. 5 CAPITAL DIMENSIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission for interim financial statements. Accordingly, the interim statements do not include all of the information and disclosures required for annual financial statements. In the opinion of the Company's management, all adjustments (consisting solely of adjustments of a normal, recurring nature) necessary for a fair presentation of these interim results have been included. These financial statements and related notes should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1997. The balance sheet at June 30, 1997 has been derived from the audited financial statements included in the Annual Report on Form 10-K. The results for the interim period ended December 31, 1997 are not necessarily indicative of the results to be expected for the entire year. 2. INCOME TAXES AND POTENTIAL DIVIDEND The Company anticipates that it will qualify, and will elect, to be taxed as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code for the fiscal year ending June 30, 1998. Under Subchapter M, the Company generally will be eligible to be taxed as a pass- through entity. If the Company meets the qualifications of Subchapter M, it must make an election to be taxed under Subchapter M status and distribute a minimum of 90% of its net income from dividends and interest. In addition, the Company may chose to distribute up to 100% of its net income from dividends and interest and up to 100% of its realized gains on investment. If this occurs, and the distribution is made within the allowed time frame following the end of its fiscal year ending June 30, 1998, the Company will not be subject to corporate income tax in fiscal 1998. Accordingly, the Company has not recorded any income tax provision for the six months ended December 31, 1997. To the extent that less than 98% of these amounts are distributed, the Company will be taxed at normal corporate tax rates plus a 4% excise tax on the undistributed portion. If the Company is unable to meet the requirements of Subchapter M, a tax provision equal to approximately 41% of income before tax would be necessary. If at any time during the current fiscal year it becomes apparent that the Company will not be able to meet the requirements of Subchapter M, the Company will record, in the period during which it becomes apparent, a provision for income taxes equal to approximately 41% of year-to-date income before tax at that time. This could significantly impact the reported net income amount in a future fiscal quarter. 3. INVESTMENT IN SMALL CONCERNS Investments were valued at estimated fair value of $24,672 at June 30, 1997, and $24,530 at December 31, 1997. The costs of those investments were:
June 30, 1997 December 31, 1997 Stocks $ 4,486 $ 4,357 Debt Securities 13,285 12,484 Loans 4,302 4,966 --------- --------- $ 22,073 $ 21,807 --------- --------- --------- ---------
6 4. VALUATION OF INVESTMENTS The Company records its investments at estimated fair value as determined by the Board of Directors. Realization of the carrying value of investments is subject to future developments relating to investee companies. Among the factors considered by the Board of Directors in determining the fair value of investments are the cost of the investment to the Company, developments since the acquisition of the investment, the financial condition and operating results of the investee, the long-term potential of the business of the investee, the value of the underlying collateral, and other factors generally pertinent to the valuation of investments. There is no public market for any of the investments. The Board, in making its evaluation, has relied on financial data of investees and, in many instances, on estimates by the management of the Company and of the investee companies as to the potential effect of future developments. Due to the nature of the Company's investments, the valuations could differ materially in the near term. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's principal investment objectives are to achieve a high level of income from both interest on loans and debt securities, generally referred to as "debt investments" and long-term appreciation in the value of equity interests in its portfolio companies. The Company's debt investments are typically secured, have relatively high fixed interest rates, and are accompanied by warrants to purchase equity securities of the borrower. In addition to interest on debt investments, the Company also typically collects an origination fee on each debt investment. The Company's financial performance is composed of four primary elements. The first is "income before gains (losses) on investments," which is the difference between the Company's income from interest and fees and its total operating expenses, including interest expense. Interest income is earned on debt investments and the temporary investment of funds available for investment in portfolio companies, which are presented in the Company's balance sheets as cash equivalents. The second element is "realized gains (losses) on investments," which is the difference between the proceeds received from the disposition of portfolio assets in the aggregate during the period and the cost of such portfolio assets. The third element is the "change in unrealized appreciation (depreciation) of investment," which is the net change in the estimated fair values at the beginning of the period or the cost of such portfolio assets, if purchased during the period. Generally, "realized gains (losses) on investment" and "changes in unrealized appreciation (depreciation) of investments" are inversely related. When an appreciated asset is sold to realize a gain, a decrease in unrealized appreciation occurs when the gain associated with the asset is transferred from the "unrealized" category to the "realized" category. Conversely, when a loss is realized by the sale or other disposition of a depreciated portfolio asset, the reclassification of the loss from "unrealized" to "realized" causes an increase in net unrealized appreciation and an increase in realized loss. The fourth element is "tax expense." The Company intends to qualify for taxation under Subchapter M for its fiscal year beginning July 1, 1997. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996 INTEREST INCOME. During the three months ended December 31, 1997, the Company earned interest on debt investment of $465,000, an 11.9% decrease from the $529,000 earned during the same period in 1996. This decrease in interest income resulted primarily from decreases in the dollar amount of outstanding debt investments and an increase in the dollar amount of debt investments on non-accrual status during the applicable periods, as there were no material changes in the average interest rate earned. The Company's debt investments (at cost) decreased to $17.4 million at December 31, 1997, a decrease of 8% from $18.9 million at December 31, 1996. 7 INTEREST EXPENSE. The Company's interest expense, which related to SBA financing, was $246,000 for the three months ended December 31, 1997, a 165% increase over the $93,000 for the comparable period in 1996. The change in interest expense is directly related to the level of debt leverage from the SBA, which was $11.9 million as of December 31, 1997, and $9.5 million as of December 31, 1996. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $301,000 for the quarter ended December 31, 1997, a 38% increase over the $218,000 for the comparable quarter in 1996. The increase was due to additional staff and public company expenses. General and administrative expenses as a percentage of total assets was 4.0% and 3.3% (annualized) for the respective periods. OFFERING COSTS. Offering costs of $253,000, related to an unsuccessful equity offering, were expensed during the quarter ended December 31, 1997. REALIZED GAINS. The Company's net realized gains on investment were $119,000 and $87,000 for the three months ended December 31, 1996 and 1997, respectively. These gains in each period were the result of the sale of equity investments. CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS. For the three months ended December 31, 1996 and 1997, the Company recorded net unrealized appreciation of investments of $18,000 and net unrealized depreciation of investments of $87,000, respectively. These changes are the result of the Company's revaluation of its portfolio in accordance with its valuation policy to reflect the change in estimated fair value of each of its portfolio assets. INCOME TAXES. The Company did not record a federal or state income tax benefit during the three months ended December 31, 1997 due to its expected Subchapter M election (see Financial Statements note 2). During the comparable period in 1996 the Company incurred $139,000 of income tax expense (an effective rate of 41%). SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996 INTEREST INCOME. During the six months ended December 31, 1997, the Company earned interest on debt investment of $945,000, a 7% decrease from the $1,022,000 earned during the same period in 1996. This decrease in interest income resulted primarily from decreases in the dollar amount of outstanding investments on accrual status during the applicable periods, as there were no material changes in the average interest rate earned. The Company's debt investments (at cost) decreased to $17.4 million at December 31, 1997, a decrease of 8% from $ 18.9 million at December 31, 1996. INTEREST EXPENSE. The Company's interest expense, which related to SBA financing, was $502,000 for the six months ended December 31, 1997, a 185% increase over the $176,000 for the comparable period in 1996. The change in interest expense is directly related to the level of debt leverage from the SBA, which was $11.9 million as of December 31, 1997, and $9.5 million as of December 31, 1996. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $619,000 for six months ended December 31, 1997, a 42% increase over the $437,000 for the comparable period in 1996. The increase was due to a charge related to the acceleration of two directors' stock option vesting dates, additional staff, and public company expenses. General and administrative expenses as a percentage of total assets was 4.1% and 3.4% (annualized) for the respective periods. 8 OFFERING COSTS. Offering costs of $253,000, related to an unsuccessful equity offering, were expensed during the quarter ended December 31, 1997. REALIZED GAINS. The Company's net realized gains on investment were $119,000 and $87,000 for the six months ended December 31, 1996 and 1997, respectively. These gains in each period were the result of the sale of equity investments. CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS. For the six months ended December 31, 1996 and 1997, the Company recorded net unrealized appreciation of investments of $18,000 and $124,000, respectively. These changes are the result of the Company's revaluation of its portfolio in accordance with its valuation policy to reflect the change in estimated fair value of each of its portfolio assets. INCOME TAXES. The Company did not record a federal or state income tax benefit during the six months ended December 31, 1997 due to its expected Subchapter M election (see Financial Statements note 2). During the comparable period in 1996 the Company incurred $217,000 (an effective rate of 41%). FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, the Company had $4.1 million in cash and cash equivalents. The Company's principal sources of capital to fund its portfolio growth have been borrowings through the SBA-sponsored SBIC debenture program, principal payments on debt investments, and sales of the Company's equity positions in certain portfolio companies. Principal payments made to the Company on its debt investments were $756,000 and $1,292,000 during the six months ended December 31, 1996 and 1997, respectively. For the third quarter of fiscal 1998, the expected principal payments owed to the Company on existing debt investments are $1,244,000. Cash proceeds from the sale of investments were $115,000 and $940,000 for the six months ended December 1996 and 1997, respectively. Cash proceeds from the sale of investments during the third quarter of fiscal 1998 are expected to exceed $914,000. The Company borrowed $2.0 million from the SBA in March 1996, $5.5 million in December 1996 and $3.0 million in June 1997. These borrowings are evidenced by three debentures which bear interest at 7.08%, 7.08%, and 7.07%, respectively. Interest only is payable semi-annually, with maturities of $7.5 million in 2006 and $3.0 million in 2007, and can be prepaid without penalty after five years. The remaining portion of the Company's SBA borrowings is evidenced by a seven year, 8.375% interest, fully amortizing note that matures on April 1, 2000, and requires quarterly principal and interest payments of $169,872. The balance on this note was $1.4 million as of December 31, 1997. Total indebtedness of the Company to the SBA as of December 31, 1997 was $11.9 million. Based on the Company's leverageable capital (as defined by the SBA), at December 31,1997, the Company was eligible to borrow from the SBA up to a total of $16.4 million. The Company made debt investments of $1.8 million and $2.2 million during the six months ended December 31, 1996 and 1997, respectively. The Company does not currently have a line of credit or revolving credit facility. As of December 31, 1997, the Company did not have any outstanding commitments to provide financing. The Company continues to review new investment requests, and expects to make additional commitments during the third and fourth quarters of fiscal 1998. 9 PART II -- OTHER INFORMATION Item 1. Not Applicable ITEM 2. Not Applicable ITEM 3. NOT APPLICABLE ITEM 4. NOT APPLICABLE ITEM 5. NOT APPLICABLE ITEM 6. NOT APPLICABLE SIGNATURES 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. CAPITAL DIMENSIONS, INC. (Registrant) February , 1998 ---- -------------------------------------- Thomas F. Hunt, Jr. President and Chief Executive Officer February , 1998 ---- -------------------------------------- Dean R. Pickerell Executive Vice President and Chief Financial Officer 10 EX-27 2 EXHIBIT 27 FDS
5 1,000 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 4,137 0 0 0 0 0 0 0 29,849 0 11,986 0 0 1,502 15,842 29,849 0 945 0 1,389 (124) 0 0 (233) 0 (233) 0 0 0 (233) (.14) (.14)
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