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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended DECEMBER 31, 1996
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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 0-9111
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DBT ONLINE, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER.)
Pennsylvania 85-0439411
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5550 W. Flamingo Road, Suite B-5
Las Vegas, Nevada 89103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 702-257-1112
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class: Name of each exchange on which
registered:
None None
- ---------------------------- --------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.10 per share
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(Title of Class)
Check whether the Registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of March 21, 1997, the aggregate market value of the voting stock of
the Registrant held by non-affiliates of the Registrant was $117,208,624.
As of March 21, 1997, the number of outstanding shares of Common Stock,
par value $.10 per share, of the Registrant was 7,736,443.
Documents Incorporated by Reference
Information required by Part III is incorporated by reference to
portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
within 120 days after the close of the 1996 fiscal year.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I ................................................................................................... 1
Item 1. Business ....................................................................................... 1
Item 2. Properties ..................................................................................... 7
Item 3. Legal Proceedings ............................................................................. 7
Item 4. Submission of Matters to a Vote of Security Holders ........................................... 7
Item Executive Officers of the Registrant............................................................. 8
PART II ................................................................................................... 10
Item 5. Market for Common Equity and Related Stockholder Matters ....................................... 10
Item 6. Selected Financial Data ....................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........... 12
Item 8. Financial Statements and Supplementary Data ................................................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. ..................................................................... 34
PART III ................................................................................................. 34
Item 10. Directors and Executive Officers of the Registrant ........................................... 34
Item 11. Executive Compensation ......................................................................... 34
Item 12. Security Ownership of Certain Beneficial Owners and Management ................................. 34
Item 13. Certain Relationships and Related Transactions. ............................................... 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............................... 34
Signatures ............................................................................................... 41
</TABLE>
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PART I
ITEM 1. BUSINESS
The Company is a holding company with two wholly-owned operating
subsidiaries, Database Technologies, Inc. ("DBT") and Patlex Corporation
("Patlex"). DBT is a national provider of on-line database services. Patlex is a
company engaged in the patent exploitation and enforcement of laser patents. The
Company's strategy is to invest its cash flows generated into the continued
development and expansion of DBT's operations.
BUSINESS OF DBT
DBT is a national provider of on-line integrated database services and
related reports to law enforcement and other governmental agencies, law firms,
insurance fraud investigation companies and other qualified entities. DBT has
developed unique algorithms and proprietary software which uses advanced micro
based technologies to locate, cross reference and retrieve public records from
multiple data sources. DBT allows its restricted customer base to access its
system via their desktop computers and generate reports which are delivered in
an organized, comprehensive and easy to read format. DBT simultaneously accesses
over 1,000 data sources containing billions of records as if they were part of a
single database in preparing the computer-generated reports.
Data Sources
DBT acquires its data from both governmental and commercial sources and
then formats the data for use with its products. DBT structures its data
purchases as either straight purchases, an acquisition of a site license or at a
variable cost based on access. In the case of purchases or site licenses,
additional costs to the supplier of such information are not generally incurred
as DBT's customers access the database. In the case of acquisitions of real-time
information, variable costs are incurred by DBT and are charged to DBT's
customers at a variable rate based upon usage by the customer.
Products
AUTOTRACK PLUS+. AutoTrack Plus+, DBT's premier product, provides
on-line access to billions of national, state and county public records. Users
are able to search a particular database and then cross-reference other
databases within AutoTrack Plus+ in order to expand the information available.
The information available through this product includes, but is not limited to,
current and past addresses, telephone numbers, neighbors, associates, as well as
professional licenses, driving histories, business profile reports, real estate,
vehicles and other assets. Users are able to undertake a detailed search of all
relevant data based on a limited amount of information.
AutoTrack Plus+ is an aggregation of numerous products; some of the
larger, more frequently accessed products are:
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Faces of the Nation. Faces of the Nation contains information on
individuals throughout the United States. With limited information such
as a name, address, both a date of birth and first name, etc.,
users can access current and previous addresses, neighbors, date of
birth and other information for millions of individuals. Although the
scope of this database is national, some individuals in the United
States may not be included.
Corporations of the Nation. Corporations of the Nation contains
information on active and inactive businesses based on secretary of
state filings in 43 states. Users can retrieve information on officers,
directors, registered agents, corporate status and federal employment
identification numbers. Searches can be performed through the use of
names, addresses, federal employer identification numbers and
corporation numbers.
Properties of the Nation. Properties of the Nation contains information
on real property in 37 states and the U.S. Virgin Islands. Users can
receive information on situs and mailing address, parcel number,
assessed values, recent and prior sales prices and property narratives
as well as other information related to the property.
Vehicles of the Nation. Vehicles of the Nation contains information on
vehicle registrations in 32 states including owner's name(s) and
address, description, title information, vehicle identification number
(VIN), lienholder information and historical data. Users can base
searches on information available concerning any combination of the
vehicle's license tag, model and description, zip code, VIN, owner
name, address and county.
Drivers of the Nation. Drivers of the Nation contains information on
drivers' licenses issued in 22 states and can be searched using a
combination of name, drivers' license number, address, date of birth
and zip code.
Liens/Judgments/Bankruptcies. Liens/Judgments/Bankruptcies contains
information on business and consumer bankruptcies in all 50 states.
Users can also locate data in 29 states relating to federal and state
tax liens and civil judgments.
Other National Databases. Other national databases offered in AutoTrack
Plus+ include "Deed Transfers of the Nation," "TRW Business Reports,"
"National Business Reports" and federal trademarks and service marks.
AutoTrack Plus+ also includes databases from a number of states with
the broadest selection of state databases for Florida, Texas, New York and
California. The most substantial individual state data in AutoTrack Plus+ is
available for individuals, corporations and assets in Florida. Florida databases
provide information on drivers' licenses, vehicles, boats, worker's compensation
claims, accident reports, trademarks, concealed weapons permits, professional
licenses, UCC lien filings, corporations, real estate and much more specialized
information. Users can access data ranging from most recent property sales
values to driving histories and can locate information on an individual's
Florida vehicles and vessels, real property, any possible Florida corporate
affiliations, Florida professional licenses, known addresses, marriages and
divorces.
Other individual state data available in AutoTrack Plus+ for various
states includes citizen profiles, professional licenses, vehicle and vessel
registrations, drivers' licenses, marriages, secretary of state filings and
other specialized data. These state databases utilize the same search methods as
the national databases and users can combine
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searches of various state and national databases.
Comprehensive and dossier reports allow users to efficiently and
cost-effectively gather all the relevant information available in AutoTrack
Plus+ on the subject of their search. These report options offer summaries and
detailed reports aggregating a broad spectrum of data from the national and
state databases and present this data in a clear and convenient format. These
reports, which can be either national or statewide in their scope, eliminate the
user's need for further searches and provides the most complete amount of
information in the shortest time.
AUTOTRACK JR. AutoTrack Jr. is a more economical means of accessing
DBT's databases for users with less extensive search needs. AutoTrack Jr.
includes mostly Florida databases including information on driver licenses,
vehicle registrations, boat registrations, accident reports, tax rolls, real
estate, worker's compensation and professional licenses. In addition, the
product includes a limited number of national databases.
DATACASE AND AUTOCASE. DataCase was introduced in December 1996
following a competitive bidding process managed by the New York Unified Court
System ("NYUCS"). DBT was selected to establish an on-line system which provides
access to civil court indices and dockets, judgment docket and lien information
and certain other information available from the court records. DataCase
provides information on New York Supreme Court civil cases from twelve New York
City metropolitan area counties and Erie County, as well as judgment, docket and
lien information for the New York City boroughs. Users also have access to the
New York State Attorney registration information and New York county clerk
records.
DataCase, which will likely be used predominantly by New York
attorneys, provides its users the opportunity to monitor the status of pending
cases and current case activity in the NYUCS. A user can access both motion
calendars and appearance calendars to assist in scheduling and planning.
DataCase allows the user to discover the litigation histories of parties and
uncover litigation patterns and practices of individuals and companies. Searches
also can be performed to determine which law firms and state justices have been
involved in particular litigation. In addition, DataCase allows users to search
for data or specific court judgments and liens in the New York City area.
Searches can be performed by case name, law firm, specific county, defendant,
plaintiff or other information. Information in DataCase is updated four times
daily and is available 24 hours a day, 7 days a week.
AutoCase, utilizing the information available through DataCase, will
offer attorneys subscribing to this service a personalized up-to-date source of
information on requested cases pending in the NYUCS. AutoCase will monitor the
activity of cases selected by the customer and automatically deliver any
relevant new information on these cases to the customer's computer the next
time the customer logs on to the system. The customer will not need to engage
in any type of search. AutoCase will serve as a constant, timely and reliable
source of information relating to the status of cases in the NYUCS. AutoCase
is expected to be launched in the second quarter of 1997.
Research and Development
DBT's research and development efforts include the following
categories:
HARDWARE AND OPERATING SYSTEM DESIGN AND IMPLEMENTATION. Utilizing the
newest and most advanced micro based technologies, DBT regularly designs, tests
and implements upgrades to its existing computer infrastructure as well as high
speed intra and inter network communications. As of December 1996, DBT
maintained over 7.0 terabytes
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of online data storage, which is continually being expanded.
DBT also develops enhancements to its open architecture mass storage
file system. The prominent advantages of DBT's file systems are large file
size, fast index retrieval and real-time redundant fault tolerances, as well as
the ability to link dissimilar data elements through intelligent indexing. In
addition, DBT continues to refine its multi-tiered client server distributed
processing environment. DBT's systems utilize distributed processing via an open
architecture. Multi-tiered client server methodology affords the ability to
seamlessly address multiple file types and utilize idle processor resources
across DBT's system infrastructure.
DELIVERY METHODS. Additional research and development efforts focus on
DBT's delivery methods. DBT continues to develop and enhance its delivery of
products through its existing interactive session manager, providing new
products and capabilities to DBT's customers. DBT is currently developing and
testing its internet interface for users with high security requirements,
particularly law enforcement. See "Products."
Customers
DBT's customer base has increased rapidly over the last three years,
from approximately 370 active customers in December 1993 to approximately 6,600
active customers in December 1996.
DBT's products were initially used primarily by insurance companies to
investigate claims. Use of the databases later expanded to law enforcement
agencies and licensed investigation firms. Currently, DBT offers its products to
law enforcement and other governmental agencies, licensed investigation firms,
law firms, insurance companies and other qualified entities. DBT reserves the
right to refuse, or withdraw without notice, access to its products. As of
December 31, 1996, the Company had 22 employees dedicated to receiving phone
calls from potential customers accounts, processing orders and verifying the
credentials and references of each potential customer. DBT has established
procedures designed to restrict access to its system and certain products to
qualified individuals. Potential customers are screened by DBT prior to being
given access to AutoTrack Plus+ or AutoTrack Jr. The screening process generally
consists of a review of professional licenses, if any, credit reports,
references and other relevant credentials in order to verify the intended use of
information. Once an application has been approved, the customer signs a
subscription agreement with DBT which provides the terms and conditions pursuant
to which DBT grants access to its products. A standard subscription agreement
includes a disclaimer of any warranties on the data and indemnification of DBT
for liabilities resulting from the customer's use of the data.
Once a customer has been approved to go on-line, DBT delivers its
software with instructions for the customer to call DBT for a password and
assistance on the installation. DBT's technical support staff of approximately
43 people works with the users to assure that the installation is performed
properly and the instructions for use of the system have been communicated.
The technical support staff is then available on an on-going basis, without
charge, to assist users as needed.
The Company has implemented a pricing plan that seeks to attract new
subscribers and to increase usage. The primary component of the Company's
pricing structure is a per-minute connection fee. The Company does not cur-
rently charge an installation or fixed monthly fee to its customers. Users
access the database by calling a toll free number by modem from their compu-
ters. The per-minute connection fee
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currently ranges from $.50 for AutoTrack Jr. to $1.50 per minute for AutoTrack
Plus+.
DBT is increasing its participation in key trade shows, advertising in
a wider range of trade journals and publications, and instituting several direct
mail campaigns targeted at specific audiences.
Government Regulation
Regulation of access to information for public usage varies from state
to state. Therefore, the amount of information available in particular states
may vary. In Florida and Texas, the two states in which DBT does the most
significant amount of its business, access to records is relatively
unrestricted. In those states, all government records are specifically made
public by law unless excluded by a specific statutory exception. Such exceptions
exist primarily with respect to some criminal history information, which, when
an exception is applicable, generally may only be provided to law enforcement
agencies for specific purposes. DBT cannot predict whether the degree of
regulation in any particular state will change, nor whether the federal
government will implement any regulations with respect to access to specific
information.
BUSINESS OF PATLEX
Patlex has been engaged in the patent exploitation and enforcement
business since late 1979. Patlex owns a 64% interest in the royalty income from,
and a 42.86% ownership interest in, the "Laser Patents" which derive from patent
applications originally filed by Dr. Gordon Gould in 1959. The patent
enforcement business includes the identification of laser products and laser
applications which infringe the Laser Patents and the execution of licensing
agreements through normal commercial negotiations or pursuant to settlements of
litigation brought against infringers of the Laser Patents. Patlex is also the
exclusive licensing agent for the Laser Patents.
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As of December 31, 1996, total royalties received from licensees of
the Laser Patents were approximately $109,665,000.
Laser Patents. The most commercially significant of the Laser Patents
is the Gas Discharge Laser Patent (U.S. Patent No. 4,704,583), which covers gas
discharge lasers. In addition, the Laser Patents consist of the Brewster Angle
Window Patent (U.S.Patent No. 4,746,201), which involves the use of an optical
system including optical elements to polarize light. The Gas Discharge Laser
Patent expires in November 2004 and the Brewster Angle Window Patent expires in
May 2005. Upon the expiration of the applicable patent, Patlex will lose its
right to exclude others from exploiting the inventions claimed therein and,
accordingly, the obligation of third parties to make royalty payments to Patlex
will cease.
Patlex's ability to exploit the Laser Patents through its licensing
program has been directly tied to its successes in litigating the validity of
the Laser Patents, both in the courts and before the United States Patent and
Trademark Office. The Company believes that the major period of litigating the
validity and enforceability of the Laser Patents has passed. The "major period"
refers to the period of time (from October 11, 1977, the issue date of the
Optically Pumped Laser Patent, through 1988) in which the most significant
number of lawsuits were prosecuted representing the greatest challenge to the
validity and scope of the Laser Patents. However, the Laser Patents may be
subject to subsequent challenges. There can be no assurance that, if challenged,
Patlex would prevail in any subsequent proceedings or that such challenges may
not entail substantial litigation expenses. If there is an unappealable
successful challenge against the validity of the Gas Discharge Laser Patent, the
impact would be materially adverse to Patlex. See "Item 3. -- Legal
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Proceedings."
There were no expenses relating to litigation of the Laser Patents
during 1996.
Patent Licensing Agreements. Patlex is the exclusive licensing agent
for the Laser Patents. As licensing agent, Patlex actively pursues its patent
licenses, which require manufacturers and users who exploit the inventions
claimed in the Laser Patents to report and pay royalties to Patlex. Patlex then
distributes these royalties among itself and the other parties holding interests
in the royalty income. Patlex actively monitors the laser industry to identify
infringers and new laser applications which infringe the Laser Patents. The
agreements into which Patlex enters generally fall into three categories: (i)
license agreements with manufacturers of lasers or laser systems that use the
inventions claimed in the Laser Patents; (ii) license agreements with users of
lasers or laser systems that use the inventions claimed in the Laser Patents;
and (iii) settlement agreements which require a payment of a specific sum of
money for past infringement of certain of the Laser Patents but do not include a
grant of a license to make, use or sell any product that utilizes the inventions
claimed in the Laser Patents. As of December 31, 1996, Patlex had agreements
with a total of 235 companies, including users and manufacturers representing a
cross-section of industries in the United States. Of such agreements, 190 were
licensing agreements with manufacturers who had an obligation to report and pay
royalties on the sale of lasers or laser systems which use the Laser Patents.
The Company believes the majority of the commercial laser manufacturers in the
United States, as well as a majority of manufacturers importing lasers into the
United States, have been licensed.
The market for Patlex's patent license agreements under the Laser
Patents depends on the commercial laser industry. The number of license
agreements fluctuates with the execution of license agreements with new
commercial entities, spin-offs creating new entities from existing licensees,
business failures, combinations between existing licensees and termination of
existing agreements for cause or by mutual consent.
The agreements with both manufacturers and users generally provide for
one or more "lump sum" payments in consideration of nonexclusive licenses for
certain applications of all of the Laser Patents and a release of all claims for
damages from past infringements. Substantially all of the licenses also provide
for future royalty payments if the licensee engages in the manufacture or sale
of lasers subject to the Laser Patents. In contrast, substantially all of the
licenses with licensees that use, but do not manufacture or sell products
covered by, the Laser Patents, provide only for a one-time lump sum payment for
past infringement. As a result of licensing efforts to date, royalties from past
infringements are expected to be minimal in the future. The two largest
licensees accounted for 13.8% and 7.8% of the Laser Patent royalties during the
fiscal year ended December 31, 1996. The Company believes that in the event
either one or both of these licensees ceases manufacturing licensed laser
products, the impact on Patlex's revenues would be temporary, as it is
anticipated that other manufacturers would satisfy the overall demand for such
licensed laser products.
Competition
The information services industry is competitive and characterized by
rapid technological change and the entry into the field of large and
well-capitalized companies as well as smaller competitors. In a broad sense, the
Company competes or may compete directly and indirectly internationally with
large, well-established information providers. These competitors offer a wide
variety of information services ranging from news to legal databases which allow
them to offer their product to larger customer bases and to more easily attract
customers to their products.
As exclusive licensing agent of the Laser Patents, Patlex does not
encounter any competition in licensing manufacturers and users of the technology
covered by the Laser Patents. Although the Company believes the laser technology
covered by the Laser Patents to be state of the art, any advance in technology
which would render one or more of the Laser Patents obsolete could have a
material adverse effect on Patlex's future patent royalty revenue.
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Employees
At December 31, 1996, the Company had 123 full-time employees, 117 of
which were employed by DBT and 6 of which were employed by Patlex. The Company
considers its relationships with its employees to be good. None of the Company's
employees are covered by collective bargaining agreements.
ITEM 2. PROPERTIES
DBT leases an aggregate of approximately 42,000 square feet in three
buildings at its Pompano Beach, Florida, facility at an annual rent of
approximately $439,000. Computer back-up files and servers are separated between
the two buildings to protect DBT from complete loss in the event of disaster.
Patlex leases approximately 2,600 square feet in Las Vegas, Nevada for
its principal executive offices. The lease has a five-year term with a renewal
option for four additional years and has minimum monthly rent payments of
$3,750. Patlex also leases approximately 600 square feet of space located in Las
Cruces, New Mexico used as additional office space. The lease has a five-year
term with minimum monthly payments of $650.
ITEM 3. LEGAL PROCEEDINGS
The Company may be involved in litigation from time to time in the
ordinary course of its business. DBT is not currently involved in any
litigation, or, to its knowledge, is any material litigation currently
threatened.
Due to the nature of Patlex's business, and especially its involvement
in the enforcement of patent rights, Patlex is from time to time involved in
litigation with alleged infringers of the Laser Patents. Patlex regards all such
lawsuits as occurring in the ordinary course of business. Furthermore, as a
result of the involvement of the United States Patent and Trademark Office in
granting and denying patent applications and in conducting reexaminations of
patents, Patlex has in the past been required to prosecute appeals to the United
States District Court from Patent and Trademark Office rulings adverse to
Patlex's interest. No such appeals are pending at this time and Patlex does not
anticipate such appeals will be necessary in the future with regard to the Laser
Patents. In connection with suits filed against alleged patent infringers to
enforce a patent, defendants often file counterclaims seeking payment by the
plaintiffs of any damages suffered by the defendants on account of the lawsuit
and reimbursement by the plaintiffs of the defendant's costs and attorney's
fees. While such counterclaims have been filed against Patlex, to date Patlex
has not incurred liability with regard to such counterclaims. Patlex may also be
required to file suits to enforce collection and compliance under its patent
license agreements with its current licensees.
In November 1994, REFAC Financial Corporation ("REFAC") instituted a
civil action in the United States District Court, Eastern District of
Pennsylvania, alleging that Patlex improperly calculated the royalties due
REFAC. The manner in which the royalties due REFAC are calculated has been
consistent for more than eight years. The Company believes that the royalties
due REFAC have been properly calculated, and that REFAC's claim is both without
merit and time-barred. On February 28, 1996, a special verdict adverse to the
Company was returned. Post-trial motions were denied, and judgment in the total
amount of $192,780.76 was entered on July 10, 1996. The Company has taken an
appeal to the United States Court of Appeals for the Third Circuit and that
appeal is expected to be decided in 1997.
Patlex has accrued the amount of the REFAC judgment plus interest
through December 31, 1996.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
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<S> <C> <C>
Frank Borman 68 Chairman of the Board of Directors
Hank E. Asher 45 President and Chief Executive Officer
Thomas L. Simpson 53 Chief Operating Officer
Timothy M. Leonard 38 Vice President, Finance, Treasurer and Chief Financial Officer
J. Henry Muetterties 43 Vice President, Secretary and General Counsel
</TABLE>
Mr. Borman has been Chairman of the Company since 1988. From August
1988 until August 1996, he served as Chief Executive Officer of the Company and
as its President from February 1989 until August 1996. Mr. Borman served as a
director of AutoFinance Group, Inc. ("AFG") from 1990 until September 27, 1995
and served as Chairman of AFG's Board of Directors from December 1992 until
September 27, 1995. From 1969-86, he served in various capacities for Eastern
Airlines, including President, Chief Executive Officer and Chairman of the Board
of Directors. He served as Vice Chairman of the Board of Directors of Texas Air
Corporation from 1986-1991. Mr. Borman served in the United States Air Force
from 1950-1970. Mr. Borman currently serves as a member of the Board of
Directors of The Home Depot, Inc., Outboard Marine Corporation, Thermo
Instruments Systems, American Superconductor Corporation and is also a member of
the Board of Trustees of the National Geographic Society.
Mr. Asher was elected President and Chief Executive Officer of the
Company on August 20, 1996. He has been the Chief Executive Officer and a
director of DBT since he founded the company in 1992. Prior to founding DBT, Mr.
Asher performed contract programming services for various computer companies.
Mr. Simpson was elected to the Board of Directors and as Chief
Operating Officer on February 18, 1997. Mr. Simpson had been Senior Vice
President, Chief Operating Officer and Secretary of GMIS Inc., a developer of
software for the health care payor market, from May 1995 until January 1997.
Prior to that, Mr. Simpson held various financial management positions at Alco
Standard Corporation ("Alco"), a distributor of paper and office products, from
1986 to 1995, including his most recent position as Chief Financial Officer at
Unisource, Inc., a distributor of paper products, a public company which was
spun-off from Alco.
Mr. Leonard was elected Vice President, Finance, Treasurer and Chief
Financial Officer of the Company on February 18, 1997. From June 1994 until
January 1997, he served in various capacities for GMIS Inc., including Director
of Finance from June 1994 through May 1995 and Vice President, Finance and Chief
Financial Officer from May 1995 through January 1997. Mr. Leonard worked for
Ernst & Young from 1981 through June 1994.
Mr. Muetterties was elected Vice President, General Counsel and
Secretary on August 20, 1996. Beginning in May 1989, he was the Vice President,
General Counsel and Secretary of Patlex and was the Corporate Licensing Counsel
for Patlex since March 1988.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Prior to September 28, 1995, there was no trading market for the
Patlex Common Stock. From September 28, 1995 and until March 17, 1996, the
Patlex Common Stock was listed on the Nasdaq Small-Cap Market under the symbol
"PTLX." The Patlex Common Stock began trading on the Nasdaq National Market on
March 18, 1996 under the symbol "PTLX." The Company's Common Stock began trading
on the Nasdaq National Market on August 20, 1996 under the symbol "DBTO."
The following table sets forth the high and low closing prices of a
share for the Company's and/or Patlex's Common Stock, for the indicated quarters
of 1995 and 1996 and the interim period indicated, as reported on The Nasdaq
Stock Market.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
1995
Third Quarter (beginning September 28, 1995).... $ 4.25 $ 4.00
Fourth Quarter ................................. 18.00 4.00
1996
First Quarter ................................... 47.50 13.25
Second Quarter ................................. 55.50 30.25
Third Quarter ................................... 48.00 35.75
Fourth Quarter ................................. 42.50 22.50
1997
First Quarter (through March 21, 1997) ......... 45.75 29.75
</TABLE>
On December 7, 1995, the last full trading day prior to the
announcement of the execution of a letter of intent with respect to a merger
between Patlex and DBT, the closing price of Patlex Common Stock as reported on
the Nasdaq Small-Cap Market was $5.25 per share. On August 19, 1996, the last
full trading day prior to the completion of the merger between Patlex and DBT,
the closing price of Patlex Common Stock as reported on the Nasdaq National
Market was $39.00. The closing price of the Company's Common Stock on March 21,
1997, as reported by the Nasdaq National Market was $43.25.
(b) Holders
The number of record holders of the Company's Common Stock as of March
21, 1997 was 514. The Company believes that a larger number of beneficial
owners hold such shares of Common Stock in depository or nominee form.
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(c) Dividends
The Company has not paid cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company as of December 31,
1992 and for the period from February 18, 1992 to December 31, 1992 and as of
and for the fiscal years ended December 31, 1993, 1994, 1995 and 1996 have been
derived from the restated audited financial statements of the Company. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
consolidated financial statements of the Company, and notes thereto, included
elsewhere in this Report.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------
-------------------
1996(1) 1995 1994 1993 1992(2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 16,321,300 $ 8,076,300 $ 2,751,100 $ 477,429 $ 1,798
Patent royalties 2,382,000 0 0 0 0
----------- ----------- ----------- ----------- ------------
Total revenues and royalties 18,703,300 8,076,300 2,751,100 477,429 1,798
Cost of revenues 8,966,300 3,372,300 856,200 179,977 27,314
Selling and promotion 1,930,400 1,025,700 287,100 7,882 1,814
Research and development 2,052,300 1,017,000 552,700 119,991 38,890
General and administrative 4,814,800 1,908,100 609,900 175,413 82,676
Loss on IRB transaction 0 1,660,100 0 0 0
----------- ----------- ----------- ----------- ------------
Total expenses 17,793,800 8,983,200 2,305,900 483,263 150,694
----------- ----------- ----------- ----------- ------------
Income (loss) from operations 909,500 (906,900) 445,200 (5,834) (148,896)
Interest (expense) income, net (159,100) (76,100) (15,400) 82,851 162,844
----------- ----------- ----------- ----------- ------------
Income (loss) before income taxes 750,400 (983,000) 429,800 77,017 13,948
Provision for income taxes 231,000 208,700 0 0 0
----------- ----------- ----------- ----------- ------------
Net income (loss) $ 519,400 $(1,191,700) $ 429,800 $ 77,017 $ 13,948
=========== =========== =========== =========== ============
Net income (loss) per common share $ 0.08 $ (0.27) $ 0.11 $ .02 $ --
=========== =========== =========== =========== ============
Weighted average shares outstanding 6,177,300 4,417,800 3,937,600 3,445,449 2,953,235
=========== =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (Deficit) $ 4,117,800 $ 508,500 $(4,373) $(36,129) $(18,955)
Total assets 29,556,000 6,557,200 1,524,450 260,804 45,769
Total debt 2,981,300 2,641,600 684,726 11,000 0
Stockholders' equity 18,230,500 2,598,400 552,305 138,483 14,948
</TABLE>
- -----------------------
(1) The 1996 Statement of Operations includes the results of Patlex from
August 20, 1996 through December 31, 1996.
(2) For the period from February 18, 1992 through December 31, 1992.
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Financial
Statements of the Company and the Notes thereto, and other financial information
included elsewhere in this Report. This Report contains certain statements
regarding future trends, the accuracy of which is subject to many risks and
uncertainties. Such trends, and their anticipated impact upon the Company, could
differ materially from those presented in this Report.
OVERVIEW OF THE COMPANY AND 1996 REORGANIZATION
The Company is a holding company with two wholly-owned operating
subsidiaries, Database Technologies, Inc. and Patlex Corporation, which are
respectively engaged in the provision of on-line integrated database services
and the patent exploitation and enforcement business. The Company was
reorganized into its current structure on August 20, 1996.
On August 20, 1996, the shareholders of Patlex approved a Plan of
Reorganization pursuant to which the Company was reorganized into a holding
company and Patlex became a wholly-owned subsidiary of the Company. Also on
August 20, 1996, another wholly-owned subsidiary of the Company merged with and
into DBT and DBT became a wholly-owned subsidiary of the Company (the "Merger").
The Company is the successor registrant to Patlex.
For accounting purposes the Merger was treated as a purchase business
acquisition of Patlex by DBT (a reverse acquisition) and a recapitalization of
DBT. Assets and liabilities of Patlex acquired in the Merger were recorded at
their fair values as of August 20, 1996.
DBT
DBT's revenues are principally derived from the billing of on-line
charges based upon per minute connection fees and from the billing of individual
report fees. DBT does not currently charge an installation or fixed monthly fee
to its customers. Users access the database by calling a toll free number by
modem from their computers. The per minute connection fee currently ranges from
$0.50 per minute to $1.50 per minute depending on the product. On-line
charges are recorded as revenues by DBT as incurred. Customers are billed
monthly.
Cost of revenues currently represents the largest portion of DBT's
total costs and expenses. Cost of revenues includes the costs associated with
the acquisition of data, depreciation on computer equipment, communication
costs, salaries and other costs related to the maintenance of the system. The
Company's data acquisition costs are generally fixed and consequently are not
directly correlated with DBT's revenues. Substantially all data acquisition
costs are expensed as incurred.
Selling and promotion expenses include all expenses incurred by DBT's
marketing and sales staff and customer and technical support personnel,
advertising costs, and expenses relating to DBT's participation at industry
trade shows and conventions.
Research and development expenses include all expenses incurred by
DBT's computer programming personnel related to improvements in DBT's computer
system and the development of new products. Research and development costs are
charged to expense when incurred.
13
<PAGE> 16
General and administrative expenses include all expenses incurred by
DBT relating to administrative and executive salaries, accounting, insurance and
other general expenses of DBT.
PATLEX
Patlex's revenues consist of royalties and income based upon the
exploitation and enforcement of its existing patents. Patlex's cost of revenues
consists of the amortization of the patent assets. General and administrative
expenses include all administrative expenses, executive salaries, other
personnel costs and other general expenses. Patlex does not have any selling and
promotion expenses or research and development expenses.
RESULTS OF OPERATIONS
Results of operations of Patlex from August 20, 1996 through December
31, 1996 are included in the Company's consolidated results of operations for
the year ended December 31, 1996.
REVENUES
The Company's revenues increased 132% to $18,703,300 in 1996 from
$8,076,300 in 1995. DBT contributed $16,321,300 to the Company's revenues and
Patlex contributed $2,382,000 to the Company's revenues. The Company's revenues
increased 194% in 1995 up from $2,751,100 in 1994.
The increase in DBT's revenues was attributable to an increase in the
number of active customers and the number of minutes users spent on line. During
1996, DBT's active customers (defined as customers accessing the system in a
given month) increased 113% to 6,600 as of December 31, 1996 from 3,100 as of
December 31, 1995. During 1995 DBT's active customers increased 210% to 3,100
active customers from 1000 active customers as of December 31, 1994.
During the year ended December 31, 1996, total system usage was 11.5
million minutes, up from 5.8 million minutes in 1995 and 1.8 million minutes in
1994, an increase of 98% and 222%, respectively. Revenues from on-line charges
in 1996 were $15,397,400, compared to $7,259,310 in 1995, and $2,233,644 in
1994, an increase of 112% in 1996 and 225% in 1995. In 1996, DBT's average
revenue per active customer was approximately $3,000. By comparison in 1995 and
1994, DBT's average revenue per average active customer was $3,500 and $3,250,
respectively.
COST OF REVENUES
The Company's cost of revenues increased 167% to $8,996,300 in 1996
from $3,372,300 in 1995. As a percentage of total revenues, cost of revenues
increased to 48% from 42% in 1995. In 1996 Patlex's cost of revenues, which
consisted solely of the amortization of its patents, was $622,300. In addition
to the consolidation of Patlex, the increase in the Company's cost of revenues
was due primarily to increases in both purchased data costs and depreciation
expense as DBT continued to invest both in its computer facilities and in
the expansion of its databases. The Company expects this trend to continue.
DBT's cost of revenues increased 294% to $3,372,300 in 1995 from
$856,200 in 1994 and increased to 42% as a percentage of total revenues from
31% in 1994. The increase was due primarily to increases in both purchased
data costs and depreciation expense.
14
<PAGE> 17
SELLING AND PROMOTION EXPENSES
DBT's selling and promotion expenses increased 88% to $1,930,400 in
1996 from $1,025,700 in 1995. The increase was primarily due to increases in
payroll and trade show expenses. As a percentage of total revenues, selling and
promotion decreased to 10.3% in 1996 from 12.7% in 1995.
DBT's selling and promotion expenses increased 257% to $1,025,700 in
1995 from $287,100 in 1994. The increase was primarily due to increases in
payroll and trade show expenses. As a percentage of total revenues, selling and
promotion increased to 12.7% in 1995 from 10.4% in 1994.
RESEARCH AND DEVELOPMENT EXPENSES
DBT's research and development expenses increased 102% and 84% in 1996
and 1995, respectively, to $2,052,300 in 1996 from $1,017,000 in 1995 and
$552,700 in 1994. These increases were caused by increases in payroll and
related expenses. As a percentage of DBT's total revenues, research and
development expenses were consistent in 1996 and 1995, at 12.6% for both years,
a decrease from 20.1% in 1994.
GENERAL AND ADMINISTRATIVE EXPENSES
DBT's general and administrative expenses increased 98% in 1996 and
213% in 1995 to $3,769,600 in 1996 from $1,908,100 in 1995 and $609,900 in 1994.
The increases were due to increases in payroll and related expenses. As a
percentage of DBT's total revenues, general and administrative expenses remained
relatively consistent at 23.1%, 23.6% and 22.2% in 1996, 1995 and 1994,
respectively. Patlex's general and administrative expenses, which consisted
principally of salaries, were $419,000 for the period from August 20, 1996
through December 31, 1996. The Company's corporate expenses, which consisted
principally of corporate insurance, public company related expenses and legal
fees, were $626,200.
INTEREST EXPENSE
Net interest expense was $159,100 in 1996 compared to $76,100 and
$15,400 in 1995 and 1994, respectively. The increases resulted primarily from
increases in the Company's average outstanding debt during each of 1996 and 1995
which was used to finance the Company's growth.
INCOME TAXES
The Company's effective income tax rate was 32% in 1996. The rate was
positively affected by a research tax credit enacted in July 1996 offset
slightly by certain non-deductible Merger expenses. The 1995 income tax expense
reflected the decision by the Company to revoke its S Corporation election and
to begin paying taxes on its earnings. As a consequence of this election, the
Company established a deferred tax liability of $155,200. There was no income
tax expense in 1994 due to the Company's S Corporation status.
15
<PAGE> 18
LOSS ON IRB TRANSACTION
The Company's consolidated statements of operations reflects, in 1995,
an expense of $1,660,100 corresponding to the costs incurred by DBT in a
transaction with International Research Bureau, Inc. ("IRB"). Effective July 1,
1995, DBT purchased for cash and stock all of the outstanding shares of IRB's
common stock. Subsequent to the acquisition, management of DBT re-evaluated the
future potential of IRB's core document retrieval business and concluded that
IRB's assets, other than its on-line customer list, had no future value to DBT.
Factors which led DBT's management to this evaluation included the conclusions
that DBT's technology was superior to IRB's, and that IRB's data was duplicative
of data which DBT already possessed. On December 13, 1995, IRB's shares were
transferred back to the original owners of IRB in exchange for DBT common stock.
Because DBT's ownership of IRB was temporary, DBT accounted for its investment
in IRB using the equity method.
As a result of these transactions, DBT acquired IRB's customer list for
its on-line business and was granted a covenant not to compete. Management's
estimate of the fair value of the acquired assets, totaling $198,600, was
recorded on DBT's balance sheet. The costs associated with this transaction
included a cash payment of $1,000,000 and the issuance of DBT common stock
valued at $485,700 (after accounting for the returned shares). The Company's
expense of $1,660,100 was calculated after writing down the Company's investment
in IRB and other costs totaling $373,000.
NET INCOME
In 1996 the Company had net income of $519,400 compared to a loss of
$1,191,700 in 1995 and income of $429,800 in 1994. Results for 1995 were
adversely impacted by a loss of $1,660,100 relating to the Company's acquisition
and disposition of IRB in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations was $1,476,200 and $1,506,900
in 1996 and 1995, respectively. The Company's capital expenditures of $5,300,700
and $3,115,600 in 1996 and 1995, respectively, were primarily attributable to
the acquisition of computer equipment for DBT. The Company had working capital
at December 31, 1996 of $4,117,800 (including cash and cash equivalents of
$6,965,600) compared to $508,500 (including cash and cash equivalents of
$1,642,700) in 1995. The increase in 1996 was due to both the Company's growth
and the acquisition of Patlex on August 20, 1996. The Company had total debt
outstanding of $2,981,300 as of December 31, 1996, which has been fully repaid
subsequent to year end.
The Company expects to fund future working capital requirements from
its existing cash balances and cash generated from operations. If necessary,
other sources of capital available to the Company may include access to the
capital markets, additional bank borrowings and lines of credit.
INFLATION
The rate of inflation has not had a material impact on the operations
of the Company. Moreover, if inflation remains at its recent levels, it is not
expected to have a material impact on the operations of the Company for the
foreseeable future.
16
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DBT ONLINE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Deloitte & Touche LLP, Independent Auditors.............................................18
Report of Ahearn, Jasco + Company, P.A., Independent Auditors.....................................19
Consolidated Balance Sheets at December 31, 1996 and 1995.........................................20
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994........21
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994..................................................................22
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994..................................................................23
Notes to Consolidated Financial Statements........................................................24
</TABLE>
17
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of DBT Online, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of DBT Online, Inc.
(the "Company") and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of DBT Online, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 26, 1997
18
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Database Technologies, Inc.:
We have audited the statements of operations, changes in stockholders' equity,
and cash flows of Database Technologies, Inc. (the "Company") for the year ended
December 31, 1994. 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 audit.
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the Company's results of operations and cash flows for
the year ended December 31, 1994 in conformity with generally accepted
accounting principles.
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
January 20, 1995
19
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31,
ASSETS 1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,965,600 $ 1,642,700
Accounts receivable, less allowance: 1996 - $250,000;
1995 - $17,500 2,397,600 839,400
Due from principal shareholder -- 200,000
Prepaid expenses and other current assets 375,100 253,900
------------ -----------
Total current assets 9,738,300 2,936,000
Property and equipment, net 6,064,300 3,128,700
Patents, less amortization: 1996 - $622,300 13,220,500 --
Other assets 532,900 492,500
------------ -----------
TOTAL ASSETS $ 29,556,000 $ 6,557,200
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,653,200 $ 968,500
Current portion of long-term debt 1,415,500 1,010,300
Bank line-of-credit 200,000 100,000
Due to other patent interest holders 1,411,300 --
Income taxes payable 618,200 --
Customer deposits 322,300 207,300
Deferred income taxes -- 141,400
------------ -----------
Total current liabilities 5,620,500 2,427,500
------------ -----------
LONG-TERM DEBT, less current portion 1,365,800 1,531,300
DEFERRED INCOME TAXES 4,339,200 --
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value. 5,000,000 shares
authorized; no shares issued or outstanding
Common stock, 40,000,000 shares authorized; 7,723,806 shares
$.10 par value and 5,127,624 shares $.001 par value issued
and outstanding at December 31, 1996 and 1995, respectively. 772,400 5,100
Additional paid-in capital 18,212,700 3,867,300
Accumulated deficit (754,600) (1,274,000)
------------ -----------
Total Stockholders' equity 18,230,500 2,598,400
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,556,000 $ 6,557,200
============ ===========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 23
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $ 16,321,300 $ 8,076,300 $ 2,751,100
Patent royalties 2,382,000 -- --
------------ ----------- -----------
Total revenues and royalties 18,703,300 8,076,300 2,751,100
------------ ----------- -----------
Cost of revenues 8,996,300 3,372,300 856,200
Selling and promotion 1,930,400 1,025,700 287,100
Research and development 2,052,300 1,017,000 552,700
General and administrative 4,814,800 1,908,100 609,900
Loss on IRB transaction -- 1,660,100 --
------------ ----------- -----------
Total expenses 17,793,800 8,983,200 2,305,900
------------ ----------- -----------
Income (loss) from operations 909,500 (906,900) 445,200
Interest expense, net (159,100) (76,100) (15,400)
------------ ----------- -----------
Income (loss) before income taxes 750,400 (983,000) 429,800
Provision for income taxes 231,000 208,700 --
------------ ----------- -----------
Net income (loss) $ 519,400 $(1,191,700) $ 429,800
============ =========== ===========
Net income (loss) per common share $ 0.08 $ (0.27) $ 0.11
============ =========== ===========
Weighted average shares outstanding 6,177,300 4,417,800 3,937,600
============ =========== ===========
Pro Forma:
Provision for income taxes $ 247,600 $ 122,300
=========== ===========
Net income (loss) $(1,230,600) $ 307,500
=========== ===========
Net income (loss) per common share $ (0.28) $ 0.08
=========== ===========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 24
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Retained
Number of Paid-In Earnings
of Shares Par Value Capital (Deficit) Total
--------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE at January 1, 1994 3,937,645 $ 3,900 $ 78,600 $ 56,000 $ 138,500
S Corporation distributions -- -- -- (16,000) (16,000)
Net income -- -- -- 429,800 429,800
---------- -------- ----------- ------------ ------------
BALANCE at December 31, 1994 3,937,645 3,900 78,600 469,800 552,300
S Corporation distributions -- -- -- (117,400) (117,400)
Record distribution payable and other
adjustments upon S Corporation
termination -- -- 230,700 (434,700) (204,000)
Stock issued for acquisition of
assets, net 192,551 200 485,500 -- 485,700
Issuance of common stock for cash 997,428 1,000 3,072,500 -- 3,073,500
Net loss -- -- -- (1,191,700) (1,191,700)
---------- -------- ----------- ------------ ------------
BALANCE at December 31, 1995 5,127,624 5,100 3,867,300 (1,274,000) 2,598,400
Adjustment for change in par value 507,700 (507,700)
Stock issued for acquisition 2,565,851 256,600 14,491,700 14,748,300
Exercise of stock options 30,331 3,000 140,000 143,000
Stock options issued for services,
net of income taxes -- -- 221,400 -- 221,400
Net income -- -- -- 519,400 519,400
---------- -------- ----------- ------------ ------------
BALANCE at December 31, 1996 7,723,806 $772,400 $18,212,700 $ (754,600) $ 18,230,500
========== ======== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 25
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 519,400 $(1,191,700) $ 429,800
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,016,500 941,900 244,800
Deferred taxes (536,000) 141,400 --
Stock options issued for services 355,000 -- --
Loss on IRB transaction -- 1,660,100 --
Changes in operating assets and liabilities
(net of effect of acquisition in 1996):
Accounts receivable and other receivables (922,000) (789,300) (240,100)
Prepaid insurance and expenses (69,600) (143,900) (32,700)
Accounts payable and accrued liabilities (126,700) 752,900 189,500
Due to other patent interest holders 120,800 -- --
Income taxes payable (996,200) -- --
Customer deposits 115,000 135,500 61,500
----------- ----------- -----------
Net cash provided by operating activities 1,476,200 1,506,900 652,800
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchased (5,300,700) (3,115,600) (961,200)
IRB transaction -- (1,373,000) --
Cash acquired in acquisition 8,505,100 -- --
Increase in deposits, and other (40,400) (240,900) (116,000)
----------- ----------- -----------
Net cash used in investing activities 3,164,000 (4,729,500) (1,077,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock -- 3,073,500 100
Net change in bank line-of-credit 100,000 100,000 --
Exercise of stock options 143,000 -- --
Proceeds from long-term debt borrowings 1,500,000 2,364,000 775,000
Repayments on long-term debt (1,260,300) (507,100) (101,300)
Repayment of note payable, shareholder and other 200,000 -- (77,400)
S Corporation distributions -- (321,400) (16,000)
----------- ----------- -----------
Net cash provided by financing activities 682,700 4,709,000 580,400
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,322,900 1,486,400 156,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,642,700 156,300 300
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,965,600 $ 1,642,700 $ 156,300
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 26
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DBT Online, Inc. (the "Company"), through its Database Technologies, Inc.
("DBT") subsidiary is engaged principally in the electronic information
retrieval industry which provides on-line, real-time access to public records.
The Company, through its Patlex Corporation ("Patlex") subsidiary, is involved
in the patent enforcement and exploitation business whereby the Company collects
royalty fees from a group of laser patents. The Company is a holding company
created in connection with a merger consummated on August 20, 1996 that was
treated as a purchase by DBT of Patlex (a reverse acquisition) and a
recapitalization of DBT.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions are eliminated.
USE OF ESTIMATES - The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and the accompanying
notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost and
depreciated using accelerated methods over the estimated useful lives
of the assets. Useful lives range from five to seven years.
Expenditures for routine maintenance and repairs are charged to expense
as incurred.
PATENTS - The patent costs are amortized on a straight-line basis over
the remaining lives of the patents.
REVENUE RECOGNITION - The Company recognizes revenue at the time of
customer access. Accounts receivable are primarily with law enforcement
agencies, insurance companies, and similar users of public records.
Patent royalties are recognized pursuant to license agreements that
require the licensees to periodically report activity to the Company.
The Company's customers are numerous and spread over a wide geographic
area. As such, the Company believes that it does not have an abnormal
concentration of credit risk within any one market or any one
geographic area.
RESEARCH AND DEVELOPMENT COSTS - Costs for research and development
activities are expensed as incurred and aggregated $2,052,300,
$1,017,000 and $552,700 for years ended December 31, 1996, 1995 and
1994, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash
and cash equivalents, accounts receivable and accounts payable
approximates fair value due to their short-term nature. The carrying
amount of long-term debt approximates fair value due to its stated
interest rate approximating a market rate.
NET INCOME (LOSS) PER COMMON SHARE - Net income (loss) per common share
is determined by dividing net income by the weighted average shares
outstanding. The weighted average shares outstanding include the effect
of stock options, if dilutive.
RECLASSIFICATIONS - Certain 1994 and 1995 amounts were reclassified to
conform with the 1996 presentation.
24
<PAGE> 27
NEW ACCOUNTING PRONOUNCEMENTS - The Company adopted the provisions of
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, in 1996. The effects of adopting SFAS No. 121
were not material in relation to the Company's financial statements.
In accordance with SFAS No. 121, management reviews long-lived assets
for possible impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. If there is an
indication of impairment, management prepares an estimate of future
cash flows (undiscounted and without interest charges) expected to
result from the use of the asset and its eventual disposition. If these
cash flows are less than the carrying amount of the asset, an
impairment loss is recognized to write down the asset to its estimated
fair value. Assets, if any, for which management has committed to a
plan to dispose of the assets, whether by sale or abandonment, are
reported at the lower of carrying amount or fair value less cost to
sell. Preparation of estimated expected future cash flows is inherently
subjective and is based on management's best estimate of assumptions
concerning future conditions.
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 123 ("SFAS No. 123"), Accounting for Stock-Based
Compensation, in 1996 (See Note 11).
2. ACQUISITION
On August 20, 1996, the former shareholders of Patlex approved a plan
of reorganization pursuant to which the Company was reorganized into a
holding company structure and each share of Patlex was converted into a
share of the Company. Also on August 20, 1996, a wholly-owned
subsidiary of the Company merged with Database Technologies, Inc.
Pursuant to the terms of the merger and reorganization, the former
shareholders of Patlex own approximately 33.2% of the Company and the
former owners of Database Technologies, Inc. own 66.8% of the Company,
based on the shares and options outstanding at August 20, 1996. For
accounting purposes, the transaction is treated as a purchase of Patlex
with DBT as the accounting acquirer.
The purchase price was determined based on the 2,947,714 shares of
Company common stock and stock options issued (based on the number of
shares of Patlex common stock and options to purchase Patlex common
stock outstanding immediately prior to the merger, as prescribed by the
merger agreement) which were valued at $14,060,000 together with
transaction costs of $689,000 and has been allocated to Patlex's assets
and liabilities based upon their estimated fair values at August 20,
1996. A summary of such allocation follows:
<TABLE>
<S> <C>
Current Assets, including cash of $8,505,100 $ 8,966,000
Investment in Patents 13,844,000
Other Assets 27,000
Current Liabilities (3,715,000)
Other Liabilities (4,373,000)
-----------
Total purchase price $14,749,000
===========
</TABLE>
As a consequence of this transaction, the consolidated financial
statements include the results of operations for Patlex for the period
from August 20, 1996, forward.
If the merger and reorganization had been completed on January 1, 1995,
pro forma results for the years ended December 31, 1996 and 1995 would
be as follows (the pro forma information is not necessarily indicative
of the consolidated results of operations that would have occurred had
the merger and reorganization been completed as of January 1, 1995):
25
<PAGE> 28
<TABLE>
<CAPTION>
Pro forma (Unaudited)
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C>
Revenue $24,017,300 $15,094,300
Net Income $ 2,688,200 $ 801,300
Net Income Per Common Share $ 0.34 $ 0.11
</TABLE>
3. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
<TABLE>
<CAPTION>
At December 31,
1996 1995
---- ----
<S> <C> <C>
Computer equipment $9,041,800 $3,999,500
Office furniture and equipment 442,500 232,000
Leasehold improvement 169,500 76,200
---------- ----------
Total cost 9,653,800 4,307,700
Less: Accumulated depreciation (3,589,500) (1,179,000)
---------- ----------
Property and equipment, net $6,064,300 $3,128,700
========== ==========
</TABLE>
Depreciation expense was $2,394,200, $885,200 and $236,200 for the
years ended December 31, 1996, 1995 and 1994, respectively.
4. PATENTS
Patlex owns a 64% income interest in laser patent revenue relating to
certain patents relating to laser technology. The most commercially
significant of the Laser Patents is the Gas Discharge Laser Patent
(U.S. Patent No. 4,704,583), which covers gas discharge lasers. In
addition, the Laser Patents consist of the Brewster Angle Window Patent
(U.S. Patent No. 4,746,201), which involves the use of an optical
system including optical elements to polarize light. The Gas Discharge
Laser Patent expires in November 2004 and the Brewster Angle Window
Patent expires in May 2005. Upon the expiration of the applicable
patent, Patlex loses its right to exclude others from exploiting the
inventions claimed therein and, accordingly, the obligation of third
parties to make royalty payments to Patlex will cease.
5. LINE-OF-CREDIT AND DEBT
The Company has a $600,000 revolving line-of-credit with a commercial
bank, bearing interest at a rate of 1% over prime (8.25% and 9.50% at
December 31, 1996 and 1995, respectively) and expiring March 31, 1997.
The line-of-credit is secured by substantially all assets of DBT and is
personally guaranteed by the principal shareholder of the Company.
Outstanding borrowings on the line-of-credit were $200,000 and $100,000
at
26
<PAGE> 29
December 31, 1996 and 1995, respectively.
Debt consists of the following:
<TABLE>
<CAPTION>
At December 31,
1996 1995
---- ----
<S> <C> <C>
Note payable to a commercial bank with monthly
principal installments of $7,680 plus interest at 7.65% at
December 31, 1996. The note matures in November 1997. $ 84,400 $ 176,600
Note payable to a commercial bank with monthly
principal installments of $6,944 plus interest at 7.65% at
December 31, 1996. The note matures in November 1997. 76,400 159,700
Note payable to a commercial bank with monthly
principal installments of $27,778 plus interest at 7.74%
at December 31, 1996. The note matures in July 1998. 527,800 861,100
Note payable to a commercial bank with monthly
principal installments of $41,667 plus interest at 7.95%
at December 31, 1996. The note matures in June 1999. 1,250,000 0
Note payable to a commercial bank with monthly
principal installments of $35,111 plus interest at
7.85% at December 31, 1996. The note matures in
December 1998. 842,700 1,264,000
Note payable to a consortium of individuals, which is non-
interest bearing. The note was paid off in 1996. 0 80,200
---------- ----------
Total debt 2,781,300 2,541,600
Less: current portion 1,415,500 1,010,300
---------- ----------
Long-term portion $1,365,800 $1,531,300
========== ==========
</TABLE>
All debt with the commercial bank was personally guaranteed by the
principal shareholder of the Company and secured by substantially all
assets of the Company. In addition, the Company must maintain certain
financial ratios and comply with specified covenants.
Subsequent to December 31, 1996, the Company paid off its
line-of-credit and all of its long-term debt. In addition, the
line-of-credit is no longer guaranteed by the principal shareholder of
the Company.
27
<PAGE> 30
6. STOCKHOLDERS' EQUITY
In connection with the acquisition of Patlex, the Company issued to the
former DBT shareholders 2.95 shares of its common stock for each DBT
common share. This exchange was accounted for as a stock split and,
accordingly, all share information presented in the accompanying
financial statements has been restated. In addition, the par value of
the Company's common stock issued in connection with the merger and
reorganization was increased to $0.10 from the $.001 par value of DBT's
common stock.
7. INCOME TAXES
Significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
<S> <C> <C>
Current:
Federal $ 667,000 $ 61,000
State 100,000 6,300
--------- ---------
767,000 67,300
Deferred:
Federal (492,700) (9,300)
State (43,300) (4,500)
Deferred tax liability established
July 1, 1995 155,200
--------- ---------
(536,000) 141,400
--------- ---------
Provision for income taxes $ 231,000 $ 208,700
========= =========
</TABLE>
Included in the 1995 provision is $155,200 in deferred income taxes
established resulting from the termination of the S Corporation
election. There was no provision for income tax in 1994 due to the
Company's S Corporation status.
Deferred income taxes reflect the net income tax effects of temporary
differences between the carrying amounts of assets and the liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Annual changes in these temporary differences constitute the
principal reconciling items between pretax accounting income and
taxable income. Significant components of the Company's deferred tax
liabilities and assets as of December 31, 1996 and 1995 are as follows:
<TABLE>
<S> <C> <C>
Deferred tax liabilities: 1996 1995
---- ----
Patents $4,503,400
Cash basis accounting 102,400 $157,900
Purchased data 102,400 108,300
---------- --------
4,708,200 266,200
Deferred tax assets:
Depreciation 171,500 124,800
Research and development tax credits 110,000
IRB loss carryforward 196,000
</TABLE>
28
<PAGE> 31
<TABLE>
<S> <C> <C>
Reserves and other 87,500
---------- --------
565,000 124,800
Valuation allowance (196,000)
---------- --------
Net deferred income tax liability $4,339,200 $141,400
========== ========
</TABLE>
DBT has a capital loss carryover of approximately $700,000 for tax
purposes, which expires in 2000. This loss results from the IRB
transaction. The related deferred tax asset has been completely offset
by a valuation allowance, as it is more likely than not that this asset
will not be realized prior to its expiration.
The reconciliation of income tax computed at the federal statutory rate
to income tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C>
Federal statutory rate 34% (34)%
Non deductible merger expenses 7 --
Loss on IRB transaction -- 61
Research and development tax credit (15) --
Income taxed as an S corporation
through July 1, 1995 -- (21)
Effect of change in tax status from
S corporation -- 17
State income taxes, net of federal
income tax benefit 6 (2)
--- ---
32% 21 %
=== ===
</TABLE>
The Company paid income taxes of $1,809,202 and $16,500 in 1996 and
1995, respectively. No income taxes were paid in 1994.
8. DUE FROM PRINCIPAL SHAREHOLDER
During 1995, the Company lent $200,000 to its principal shareholder.
The loan was unsecured, bearing interest at prime and was repaid in
1996.
9. IRB TRANSACTION
Effective July 1, 1995, the Company purchased for cash and stock all of
the outstanding shares of common stock of International Research
Bureau, Inc. ("IRB"). Subsequent to the acquisition, the Company
reevaluated the future potential of IRB's core document retrieval
business and concluded that IRB's assets, other than its on-line
customer list, had no future value. Factors which led the Company's
management to this evaluation included the conclusions that the
Company's technology was superior to IRB's and that IRB's data was
duplicative of data which the Company already possessed. On December
13, 1995, IRB's shares were transferred back to the original owners of
IRB in exchange for DBT common stock. Because the Company's
ownership of IRB was temporary, DBT has accounted for its investment in
IRB using the equity method.
29
<PAGE> 32
As a result of these transactions, the Company acquired IRB's customer
list for its on-line business and a covenant not to compete. The assets
of the Company given up included cash of $1,000,000; common stock
valued at $485,700 (after accounting for the returned shares); and
investments in the operations of IRB and other costs totaling $373,000.
Management's estimate of the fair value of the acquired assets,
totaling $198,600, was recorded on DBT's balance sheet, and the
remainder of the costs incurred were charged to operations.
10. COMMITMENTS AND CONTINGENCIES
Litigation
The Company may be involved in litigation from time to time in the
ordinary course of its business. DBT is not currently involved in any
litigation, or to its knowledge, is any material litigation currently
threatened.
Due to the nature of Patlex's business, and especially its involvement
in the enforcement of patent rights, Patlex is from time to time
involved in litigation with alleged infringers of the Laser Patents.
Patlex regards all such lawsuits as occurring in the ordinary course of
business. Furthermore, as a result of the involvement of the United
States Patent and Trademark Office in granting and denying patent
applications and in conducting reexaminations of patents, Patlex has in
the past been required to prosecute appeals to the United States
District Court from Patent and Trademark Office rulings adverse to
Patlex's interest. No such appeals are pending at this time and Patlex
does not anticipate such appeals will be necessary in the future with
regard to the Laser Patents. In connection with suits filed against
alleged patent infringers to enforce a patent, defendants often file
counterclaims seeking payment by the plaintiffs of any damages suffered
by the defendants on account of the lawsuit and reimbursement by the
plaintiffs of the defendant's costs and attorney's fees. While such
counterclaims have been filed against Patlex, to date Patlex has not
incurred liability with regard to such counterclaims. Patlex may also
be required to file suits to enforce collection and compliance under
its patent license agreements with its current licensees.
In November 1994, REFAC Financial Corporation ("REFAC") instituted a
civil action in the United States District Court, Eastern District of
Pennsylvania, alleging that Patlex improperly calculated the royalties
due REFAC. The manner in which the royalties due REFAC are calculated
has been consistent for more than eight years. Patlex believes that the
royalties due REFAC have been properly calculated, and that REFAC's
claim is both without merit and time-barred. On February 28, 1996, a
special verdict adverse to Patlex was returned. Post-trial motions
were denied, and judgment in the total amount of $192,780.76 was
entered on July 10, 1996. The Company has taken an appeal to the
United States Court of Appeals for the Third Circuit and that appeal
is expected to be decided in 1997.
Patlex has accrued the amount of the REFAC judgment plus interest
through December 31, 1996.
Royalty Agreement
On February 7, 1994, a debt and royalty agreement was entered into with
a consortium of seven individuals. During 1995, one of these seven
became a shareholder and director of DBT. The agreement provided the
financing necessary for DBT to enter the Texas market with its database
services. The agreement provided for a loan to DBT in February 1994 of
$200,000 which was repaid in 1995 and a royalty agreement to share in
the revenues of the Texas expansion up to $800,000, computed as 10% of
specified revenues from Texas operations. Through December 31, 1996,
the Company had paid $59,900 relating to such royalties.
Employment Agreements
In March 1991, Patlex entered into an employment agreement with its
chairman, Mr. Borman, effective January 1, 1991. The agreement provides
for minimum annual compensation of $145,000 and provides for an
initial three-year employment period which is automatically extended
for an additional year on its anniversary date unless the Company
notifies him it does not wish to extend the term of the agreement.
30
<PAGE> 33
Patlex has entered into employment agreements with its chief financial
officer, controller and vice-president/general counsel which have been
extended through December 31, 1999 and provided for a base compensation
in 1996 of $100,000, $114,000, and $84,000, respectively, plus bonuses
and other incentive compensation.
Leases
The Company leases all of its office space under agreements expiring on
various dates through 2001. Certain of these leases contain three-year
renewal options.
Future minimum payments under operating leases that have
non-cancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
1997 $305,700
1998 210,900
1999 63,700
2000 52,800
2001 26,400
--------
Total $659,500
========
</TABLE>
Rent expense was $327,700, $284,700 and $62,500, respectively, for the
years ended December 31, 1996, 1995, and 1994.
11. STOCK OPTIONS
The Company has incentive and non-qualified stock option plans for
directors and key employees and has 900,000 shares of Common Stock
reserved for issuance under these plans. The incentive and
non-qualified options become exercisable as determined by the Board of
Directors and have a term of ten years.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Number Exercise Price
of Shares per Share
==========================================================================
<S> <C> <C>
Acquired in connection with the
acquisition and reorganization 350,000 $ 4.75
Granted 516,000 40.00
Exercised (30,000) 4.75
Canceled (11,000) 40.00
==========================================================================
Outstanding at December 31, 1996 320,000 $ 4.75
505,000 40.00
Exercisable at December 31, 1996 320,000 $ 4.75
45,000 40.00
</TABLE>
The options with a $4.75 exercise price have a remaining contractual
life of 8.8 years and those with a $40 exercise price have a remaining
contractual life of 9.6 years.
31
<PAGE> 34
In addition, there are 31,978 options outstanding (all exercisable) for
which no consideration will accrue to the Company. Of those
outstanding, 332 options were exercised in 1996.
The Company accounts for stock options issued to employees in
accordance with Accounting Principles Board Opinion No. 25 ("APB No.
25"), Accounting for Stock Issued to Employees. The Company's employee
stock options are issued with exercise prices which equal the market
price of the Company's common stock on the date of grant and,
consequently, no compensation expense is recognized.
SFAS No. 123 requires entities that account for awards for stock-based
compensation to employees in accordance with APB No. 25 to present pro
forma disclosures of net income and earnings per share as if
compensation cost was measured at the date of grant based on the fair
value of the award. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1996: a risk-free interest
rate of 6.5%, no dividend yield, a volatility factor of the expected
market price of the Company's common stock of 47% and a
weighted-average expected life of the option of 6 years. The fair
value per option is approximately $20 at December 31, 1996.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's net income and net income per share would have been reduced
to the following pro forma amounts for the year ended December 31,
1996, as follows:
<TABLE>
<S> <C>
Net income:
As reported $519,400
Pro forma $179,400
Net income per share:
As reported $ .08
Pro forma $ .03
</TABLE>
The above pro forma amounts reflect only the effect of stock options
granted subsequent to January 1, 1996. Accordingly, the pro forma
amounts may not be representative of the future effects on reported net
income and earnings per share that will result from the future granting
of stock options, since the pro forma compensation expense is allocated
over the periods in which options become exercisable and new option
awards are granted each year.
32
<PAGE> 35
12. BUSINESS SEGMENTS
With the acquisition of Patlex in August 1996, the Company operates in
two major segments: electronic information retrieval industry and the
patent enforcement and exploitation business. Information concerning
the segments in which the Company operates is shown in the table below.
Operating profit is derived as total revenues less operating expenses;
interest expense and general corporate expenses have not been
considered. Identifiable assets by segment are those assets that are
used in the Company's operations in each segment. General corporate
assets consist primarily of cash and cash equivalents.
<TABLE>
<CAPTION>
1996
----
<S> <C>
Revenues:
DBT $ 16,321,300
Patlex 2,382,000
------------
Consolidated revenues $ 18,703,300
============
Operating profit:
DBT $ 194,700
Patlex 1,341,000
------------
Segment operating profit 1,535,700
Interest expense (159,100)
General corporate expense (626,200)
------------
Consolidated income before income taxes $ 750,400
============
Identifiable assets:
DBT $ 9,000,900
Patlex 20,292,500
------------
Total identifiable assets 29,293,400
General corporate assets 262,600
------------
Consolidated assets $ 29,556,000
============
Capital expenditures:
DBT $ 5,277,400
Patlex 23,300
------------
Consolidated capital expenditures $ 5,300,700
============
Depreciation and amortization of identifiable assets:
DBT $ 2,388,200
Patlex 628,300
------------
Consolidated depreciation and amortization of
identifiable assets $ 3,016,500
============
</TABLE>
13. PRO FORMA INCOME TAXES AND EARNINGS (Unaudited)
As discussed in Note 7, having elected status as an S corporation, the
shareholders of DBT paid the federal
33
<PAGE> 36
income tax on DBT's earnings through June 30, 1995. Additionally, DBT
was exempt from Florida state income tax on its earnings during that
period, as Florida does not separately tax S corporations. As a result,
no income tax expense was provided in the historical financial
statements for taxable income attributable to DBT through June 30,
1995; however, as disclosed in the Consolidated Statement of Changes in
Stockholders' Equity, S corporation distributions were made to the
shareholders to assist them in making the corporate tax payments.
The pro forma amounts presented on the accompanying consolidated
statements of operations reflect the amount of income taxes, the
resulting income after taxes, and earning per share as if DBT had not
made the election to be taxed as an S corporation. The pro forma
computation of taxes for 1995 excludes the loss of the IRB transaction
as the deferred tax asset arising from this loss has been fully
allowanced.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
34
<PAGE> 37
PART III
ITEMS 10, 11, 12 AND 13.
The information required under these items is contained in the
Company's 1997 Proxy Statement, that will be filed with the Securities and
Exchange Commission within 120 days after the close of the Company's fiscal year
end. This information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS REPORT:
1. Financial Statements
The financial statements required by this item are included
and listed in the accompanying Index to Consolidated Financial
Statements in Part II, Item 8 of this Report.
35
<PAGE> 38
2. Financial Statement Schedules
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Deloitte & Touche LLP, Independent Auditors...............................37
Report of Ahearn, Jasco + Company, P.A., Independent Auditors.......................38
SCHEDULE II - Valuation and Qualifying Accounts.....................................39
Schedules I, III and IV are not required to be filed.
</TABLE>
36
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of DBT Online, Inc. and subsidiaries:
We have audited the consolidated financial statements of DBT Online, Inc. (the
"Company") and subsidiaries as of December 31, 1996 and 1995, and for the years
then ended, and have issued our report thereon dated March 26, 1997; such report
is included elsewhere in this Form 10-K. Our audits also included the
consolidated financial statement schedule of the Company, listed in Item 14.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 26, 1997
37
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of DBT Online, Inc. and subsidiaries:
We have audited the financial statements of DBT Online, Inc. (the "Company") as
of and for the year ended December 31, 1994, and have issued our report thereon
dated January 20, 1995. Our report on the statements of operations, changes in
stockholders equity, and cash flows for the year ended December 31, 1994 is
included elsewhere in this Form 10-K. Our audit also included the financial
statement schedule of the Company, listed in Item 14. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
January 20, 1995
38
<PAGE> 41
DBT ONLINE, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
DESCRIPTION
- ----------- CHARGED TO WRITE-OFFS
BEGINNING STATEMENT OF OTHER AND OTHER ENDING
BALANCE OPERATIONS INCREASES(1) ADJUSTMENTS BALANCE
------- ---------- ------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowances for
uncollectible accounts ......... $ 3,000 $ 11,000 $ 0 $ 6,000 $ 8,000
======== ======== ======== ======== ========
Year ended December 31, 1995:
Allowances for
uncollectible accounts ......... $ 8,000 $ 31,100 $ 0 $ 21,600 $ 17,500
======== ======== ======== ======== ========
Year ended December 31, 1996:
Allowances for
uncollectible accounts ......... $ 17,500 $ 49,900 $200,000 $ 17,400 $250,000
======== ======== ======== ======== ========
</TABLE>
- ----------
(1) Represents the allowance established in connection with the acquisition of
Patlex.
39
<PAGE> 42
3. Exhibits:
The following is a list of all exhibits filed as a part of
this Report:
EXHIBITS
EXHIBIT DESCRIPTION OF DOCUMENT
3(i)** Amended and Restated Articles of Incorporation
3(ii)** Amended and Restated Bylaws
10(i)+ Employment Agreement dated March 11, 1990 between Patlex and
Frank Borman***
10(ii)+ Employment Agreement dated September 15, 1992 between Patlex
and Richard Laitinen***
10(iii)+ Employment Agreement dated September 14, 1992 between Patlex
and J. Henry Muetterties***
10(iv)+ Security and Escrow Agreement dated September 29, 1992 between
Patlex and NGN Acquisition Corporation
10(v)+ Standard Form of Licensing Agreement
10(vi)+ Purchase Agreement dated December 11, 1979 between Patlex and
Gordon Gould
10(vii)+ Agreement dated January 31, 1982 among Patlex, Refac
Technology Development Corporation, Refac International
Limited, Gordon Gould, NGN Acquisition Corporation and the
partnership of Lerner, David, Littenberg & Samuel
10(viii)+ Agreement dated October 1, 1984 among Patlex, Refac Technology
Development Corporation, East West Trade Services, Ltd. and
Refac International, Ltd.
10(ix)+ Agreement dated 1986 among Patlex and NGN Acquisition
Corporation, Gordon Gould and Apollo Lasers, Inc.
10(x)+ Letter of Clarification dated January 31, 1990 among Patlex,
Gordon Gould and NGN Acquisition Corporation
10(xi)+ Stock Purchase Agreement dated May 14, 1991 among Patlex,
Sydney M. Irmas and certain other shareholders
10(xii)** Amended and Restated Stock Option Plan
21* Subsidiaries
23.1* Consent of Deloitte & Touche LLP
23.2 Consent of Ahearn, Jasco + Company, P.A.
27* Financial Data Schedule (for SEC use only)
- ------------------------
* Filed herewith.
** Incorporated by reference to the Company's Registration Statement on
Form S-4(File No. 333-2000).
+ Incorporated by reference to the Form 10-KSB of Patlex Corporation for
the year ended June 30, 1995.
*** Management contract or compensatory Plan.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this Report.
40
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DBT Online, Inc.
Date: March 31, 1997 By: /s/ Hank E. Asher
-----------------------------------------
Hank E. Asher
President and Chief Executive Officer
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS
BELOW IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS TIMOTHY LEONARD HIS
TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ANY AND ALL AMENDMENTS TO THIS REPORT, AND IN EACH CASE TO FILE THE
SAME, WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND
HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR
SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ Frank Borman Chairman of the Board of March 31, 1997
- ------------------------------ Directors
Frank Borman
/s/ Hank E. Asher President, Chief March 31, 1997
- ------------------------------ Executive Officer and
Hank E. Asher Director
/s/ Thomas Simpson Chief Operating Officer March 31, 1997
- ------------------------------ and Director
Thomas Simpson
</TABLE>
41
<PAGE> 44
<TABLE>
<S> <C> <C>
/s/ Timothy Leonard Chief Financial Officer March 31, 1997
- ------------------------------ (Principal Financial and
Timothy Leonard Accounting Officer)
/s/ Charles A. Asher Director March 22, 1997
- ------------------------------
Charles A. Asher
/s/ Gary E. Erlbaum Director March 31, 1997
- ------------------------------
Gary E. Erlbaum
/s/ Jack Hight Director March 25, 1997
- ------------------------------
Jack Hight
/s/ Eugene L. Step Director March 31, 1997
- ------------------------------
Eugene L. Step
/s/ Ken Langone Director March 31, 1997
- ------------------------------
Ken Langone
/s/ Sari Zalcberg Director March 22, 1997
- ------------------------------
Sari Zalcberg
</TABLE>
42
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Patlex Corporation, a Pennsylvania corporation (as of August 20, 1996)
2. Database Technologies, Inc., a Florida corporation (as of August 20, 1996)
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-11235 of DBT Online, Inc. on Form S-8 of our report dated March 26, 1997,
appearing in this Annual Report on Form 10-K of DBT Online, Inc. for the year
ended December 31, 1996.
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
March 26, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-11235 of DBT Online, Inc. on Form S-8 of our report dated January 20, 1995,
appearing in this Annual Report on Form 10-K of DBT Online, Inc.
for the year ended December 31, 1996.
AHEARN, JASCO + COMPANY, P.A.
Pompano Beach, Florida
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,965,600
<SECURITIES> 0
<RECEIVABLES> 2,647,600
<ALLOWANCES> (250,000)
<INVENTORY> 0
<CURRENT-ASSETS> 9,738,300
<PP&E> 9,653,800
<DEPRECIATION> (3,589,500)
<TOTAL-ASSETS> 29,556,000
<CURRENT-LIABILITIES> 5,620,500
<BONDS> 1,365,800
0
0
<COMMON> 772,400
<OTHER-SE> 17,458,100
<TOTAL-LIABILITY-AND-EQUITY> 29,556,000
<SALES> 16,321,300
<TOTAL-REVENUES> 18,703,300
<CGS> 8,996,300
<TOTAL-COSTS> 8,996,300
<OTHER-EXPENSES> 8,797,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159,100
<INCOME-PRETAX> 750,400
<INCOME-TAX> 231,000
<INCOME-CONTINUING> 519,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 519,400
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
