<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
( ) 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 0-9111-99
---------
DBT ONLINE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 85-0439411
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5550 W. FLAMINGO ROAD, SUITE B-5
----------------------------------------
(Address of principal Executive Offices)
LAS VEGAS, NEVADA 89103
----------------------------------------
(702) 257-1112
----------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter periods that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
The number of common shares outstanding as of June 30, 1997 was 9,095,818.
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DBT ONLINE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996..................................................................3
Consolidated Statements of Operations for the Three Months Ended June 30, 1997
and 1996...............................................................................4
Consolidated Statements of Operations for the Six Months Ended June 30, 1997
and 1996...............................................................................5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996...........................................................6
Notes to Consolidated Financial Statements......................................................7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................8
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..............................................................................11
Item 2. CHANGES IN SECURITIES..........................................................................11
Item 3. DEFAULTS UPON SENIOR SECURITIES................................................................11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS............................................11
Item 5. OTHER INFORMATION..............................................................................12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................................12
Signature........................................................................................................13
EXHIBIT
Exhibit 27.1 Financial Data Schedule..............................................................E-1
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
DBT ONLINE, INC. and subsidiaries
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 52,134,900 $ 6,965,600
Accounts receivable, less allowance:
June 30, 1997- $274,000 December 31, 1996-$250,000 3,646,100 2,397,600
Prepaid expenses and other current assets 616,500 375,100
------------ ------------
Total current assets 56,397,500 9,738,300
Property and equipment, net 7,998,500 6,064,300
Patents, less amortization:
June 30, 1997 - $1,469,800; December 31, 1996 - $622,300 12,373,000 13,220,500
Other assets 515,900 532,900
------------ ------------
Total assets $ 77,284,900 $ 29,556,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,570,900 $ 1,653,200
Current portion of long-term debt 0 1,415,500
Bank line-of-credit 0 200,000
Due to other patent interest holders 1,405,800 1,411,300
Income taxes payable 408,200 618,200
Customer deposits 260,800 322,300
------------ ------------
Total current liabilities 5,645,700 5,620,500
Long-term debt, less current portion 0 1,365,800
Deferred income taxes 4,169,500 4,339,200
Stockholders' equity:
Preferred stock, $.10 par value
5,000,000 shares authorized; no shares issued or outstanding -- --
Common stock, $.10 par value 40,000,000
shares authorized; 9,095,818 shares
and 7,723,806 shares issued and outstanding
at June 30, 1997 and December 31, 1996, respectively 909,600 772,400
Additional paid in capital 65,004,100 18,212,700
Retained earnings (deficit) 1,556,000 (754,600)
------------ ------------
Total stockholders' equity 67,469,700 18,230,500
------------ ------------
Total liabilities and stockholders' equity $ 77,284,900 $ 29,556,000
============ ============
</TABLE>
See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 7,019,100 $ 3,789,000
Patent royalties 1,817,500
----------- -----------
Total revenues and royalties 8,836,600 3,789,000
Cost of revenues 3,401,500 1,862,300
Selling and promotion 704,300 489,600
Research and development 625,200 585,200
General and administrative 2,053,600 851,900
----------- -----------
Total expenses 6,784,600 3,789,000
----------- -----------
Income from operations 2,052,000 0
Interest income (expense), net 238,100 (66,200)
----------- -----------
Income before income taxes 2,290,100 (66,200)
Provision for income taxes 870,200 (43,000)
----------- -----------
Net income $ 1,419,900 ($ 23,200)
=========== ===========
Net income per common share $ 0.17 --
=========== ===========
Weighted average shares outstanding 8,580,500 5,127,600
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $13,100,600 7,138,800
Patent royalties 3,335,000
----------- -----------
Total revenues and royalties 16,435,600 7,138,800
Cost of revenues 6,672,200 3,414,800
Selling and promotion 1,297,300 805,500
Research and development 1,154,900 983,700
General and administrative 3,853,900 1,619,000
----------- -----------
Total expenses 12,978,300 6,823,000
----------- -----------
Income from operations 3,457,300 315,800
Interest income (expense), net 269,400 (101,600)
----------- -----------
Income before income taxes 3,726,700 214,200
Provision for income taxes 1,416,100 62,500
----------- -----------
Net income $ 2,310,600 $ 151,700
=========== ===========
Net income per common share $ 0.28 $ 0.03
=========== ===========
Weighted average shares outstanding 8,316,800 5,127,600
=========== ===========
</TABLE>
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,310,600 $ 151,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,293,300 944,100
Deferred taxes ($ 169,700) ($ 46,200)
Changes in operating assets and liabilities:
Accounts receivable (1,248,500) (547,200)
Prepaid expenses and other current as (241,400) (67,300)
Accounts payable and accrued liabili1 1,917,700 127,900
Due to other patent interest holders (5,500) 0
Income taxes payable (210,000) 0
Customer deposits (61,500) 68,300
------------ ------------
Net cash provided by operating activities 4,585,000 631,300
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchased (3,380,000) (2,757,400)
Increase in other assets 17,000 (153,300)
------------ ------------
Net cash used in investing activities (3,363,000) (2,910,700)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common stock 46,928,600 0
Net change in bank line-of-credit (200,000) 500,000
Issuance of long-term debt 0 1,500,000
Repayments on long-term debt (2,781,300) (545,200)
------------ ------------
Net cash provided by financing activities 43,947,300 1,454,800
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 45,169,300 (824,600)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,965,600 1,642,700
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,134,900 $ 818,100
============ ============
</TABLE>
See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto, which are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of DBT Online, Inc. (the "Company") and its wholly-owned subsidiaries, Database
Technologies, Inc., a Florida corporation ("DBT") and Patlex Corporation (since
August 20,1996, date of merger), a Pennsylvania corporation ("Patlex"). The
interim consolidated financial statements as of June 30, 1997 and for the six
months ended June 30, 1997 and 1996 are unaudited. All significant intercompany
accounts and transactions have been eliminated. The accompanying consolidated
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position, results
of operations and cash flows for the interim periods presented. Such adjustments
consist solely of normal recurring accruals. Results for the interim periods are
not necessarily indicative of results for a full year.
NOTE 2. PRO FORMA INFORMATION
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 DBT. Pursuant to the terms of the merger and reorganization, the
former shareholders of Patlex received approximately 33.2% of the Company and
the former owners of DBT received 66.8% of the Company, based on the shares and
options outstanding at August 20, 1996. For accounting purposes, the transaction
was treated as a purchase of Patlex with DBT as the accounting acquirer.
If the merger and reorganization had been completed on January 1, 1996,
pro forma results for the six months ended June 30, 1996 would be as follows
(the pro forma information is not necessarily indicative of the combined results
of operations that would have occurred had the merger and reorganization been
completed as of January 1, 1996):
Revenues $ 11,454,000
Net Income $ 1,241,000
Net Income Per Common Share $ 0.16
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto. This information
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
Form 10-Q.
OVERVIEW OF THE COMPANY AND 1996 REORGANIZATION
The Company is a holding company with two wholly-owned operating
subsidiaries, DBT and Patlex, 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 value as of August 20, 1996.
REVENUES
The Company's revenues increased 133% to $8,836,600 for the three
months ended June 30, 1997 from $3,789,000 for the same period in 1996. DBT
contributed $7,019,100 to the Company's revenues and Patlex contributed
$1,817,500 to the Company's revenues. 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. DBT's active customers (defined as customers
accessing the system in a given month) increased 88% to 9,000 at June 30, 1997
from 4,800 at June 30, 1996. Total system usage was 4.8 million minutes for the
three months ended June 30, 1997, up from 2.6 million minutes for the same
period in 1996, an increase of 85%. Revenues from on-line charges were
$6,333,200 and $3,562,100 for the three months ended June 30, 1997 and 1996,
respectively, an increase of 78%.
The Company's revenues increased 130% to $16,435,600 for the six months
ended June 30, 1997 from $7,138,800 for the same period in 1996. DBT contributed
$13,100,600 to the Company's revenues and Patlex contributed $3,335,000 to the
Company's revenues. Total system usage was 9.2 million minutes for the six
months ended June 30, 1997, up from 4.9 million minutes for the same period in
1996, an increase of 88%. Revenues from on-line charges were $12,171,300 and
$6,714,600 for the six months ended June 30, 1997 and 1996, respectively, an
increase of 81%.
COST OF REVENUES
The Company's cost of revenues increased 83% to $3,401,500 for the
three months ended June 30, 1997 from $1,862,300 for the same period in 1996. As
a percentage of total revenues, cost of revenues decreased to 38.5% for the
three months ended June 30, 1997 from 49.2% for the same period in 1996. For the
three months ended June 30, 1997, Patlex's cost of revenues, which consisted
solely of the amortization of its patents, was $423,800. 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.
The Company's cost of revenues increased 95% to $6,672,200 for the six
months ended June 30, 1997 from $3,414,800 for the same period in 1996. As a
percentage of total revenues, cost of revenues decreased to 40.6% for the six
months ended June 30, 1997 from 47.8% for the same period in 1996. For the six
months ended June 30, 1997, Patlex's cost of revenues, which consisted solely of
the amortization of its patents, was $847,600. In addition
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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.
SELLING AND PROMOTION EXPENSES
DBT's selling and promotion expenses increased 44% to $704,300 for the
three months ended June 30, 1997 from $489,600 for the same period in 1996. The
increase was primarily due to increases in payroll and trade show expenses. As a
percentage of total revenues, selling and promotion decreased to 8% for the
three months ended June 30, 1997 from 12.9%, for the same period in 1996.
DBT's selling and promotion expenses increased 61% to $1,297,300 for
the six months ended June 30, 1997 from $805,500 for the same period in 1996.
The increase was primarily due to increases in payroll and trade show expenses.
As a percentage of total revenues, selling and promotion decreased to 7.9% for
the six months ended June 30, 1997 from 11.3%, for the same period in 1996.
RESEARCH AND DEVELOPMENT EXPENSES
DBT's research and development expenses increased 6.8% to $625,200 for
the three months ended June 30, 1997 from $585,200 for the same period in 1996.
This increase was caused by an increase in payroll and related expenses. As a
percentage of total revenues, research and development expenses were 7.1% for
the three months ended June 30, 1997, a decrease from 15.4% for the same period
in 1996.
DBT's research and development expenses increased 17% to $1,154,900 for
the six months ended June 30, 1997 from $983,700 for the same period in 1996.
This increase was caused by an increase in payroll and related expenses. As a
percentage of total revenues, research and development expenses were 7% for the
six months ended June 30, 1997, a decrease from 13.8% for the same period in
1996.
GENERAL AND ADMINISTRATIVE EXPENSES
DBT's general and administrative expenses increased 92% to $1,631,500
for the three months ended June 30, 1997 from $851,900 for the same period in
1996. This increase was due to increases in payroll and related expenses.
Patlex's general and administrative expenses, which consisted principally of
salaries, were $288,400 for the three months ended June 30, 1997. The Company's
corporate expenses, which consisted principally of corporate insurance, public
company related expenses and legal fees, were $133,700. As a percentage of total
revenues, general and administrative expenses remained relatively consistent at
23.2% and 22.5% for the three months ended June 30, 1997 and 1996, respectively.
DBT's general and administrative expenses increased 90% to $3,077,900
for the six months ended June 30, 1997 from $1,619,000 for the same period in
1996. This increase was due to increases in payroll and related expenses.
Patlex's general and administrative expenses, which consisted principally of
salaries, were $542,900 for the six months ended June 30, 1997. The Company's
corporate expenses, which consisted principally of corporate insurance, public
company related expenses and legal fees, were $233,100. As a percentage of total
revenues, general and administrative expenses remained relatively consistent at
23.4% and 22.7% for the six months ended June 30, 1997 and 1996, respectively.
INTEREST EXPENSE
Net interest income was $238,100 for the three months ended June 30,
1997 compared to net interest expense of $66,200 for the same period in 1996.
The net interest income is due to the Company's investment earnings on proceeds
from the issuance of Common Stock in May, 1997
INCOME TAXES
The Company's effective income tax rate was 38% for the six months
ended June 30, 1997 compared to 29.2% for the same period in 1996.
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NET INCOME
The Company had net income of $2,310,600 for the six months ended June
30, 1997 compared to $151,700 for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations was $4,585,000 and $631,300 for
the six months ended June 30, 1997 and 1996, respectively. The Company's capital
expenditures of $3,380,000 and $2,757,400 for the six months ended 1997 and
1996, respectively, were primarily attributable to the acquisition of computer
equipment for DBT. The Company had working capital at June 30, 1997 of
$50,751,800 (including cash and cash equivalents of $52,134,900 compared to
$4,117,800 (including cash and cash equivalents of $6,965,600) at December 31,
1996. The increase in working capital at June 30, 1997 is principally due to
receipt by the Company of $46.9 million from its issuance of 1,345,000 shares of
Common Stock in May, 1997. The Company expects to fund future working capital
requirements from its existing cash balances and cash generated from operations.
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.
NEW ACCOUNTING PRONOUNCEMENT
The Company will adopt the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128), Earnings Per Share, in the fourth quarter of
1997. The effects of adopting SFAS No. 128 will not be material in relation to
the Company's financial statements.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information contained above with respect to the Company's investment in
its computer facilities and the expansion of its databases, and other statements
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations, regarding expected future events and financial results is
forward-looking and subject to risks and uncertainties. Those statements are
forward-looking statements within the meaning of Section 31E of the Securities
Exchange Act of 1934. The following important factors could affect the future
results of the Company and could cause those results to differ materially from
those expressed in the forward-looking statements: (i) the ability to manage
DBT's rapid expansion, (ii) protecting DBT's proprietary technology, (iii)
impact of future government regulation on the availability of public records,
and (iv) the extent, timing and success of competition from other database
providers.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None to report.
ITEM 2. CHANGES IN SECURITIES
None to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the Annual Meeting of Shareholders for the Company held on May 22,
1997, the shareholders took the following action with respect to the following
three matters which were the only matters submitted to a vote of the
shareholders:
(A) Elected three Class I directors consisting of those persons listed
below. The number of votes for and votes withheld from each
nominee for director are set forth opposite each director's name.
<TABLE>
<CAPTION>
NOMINEE FOR TERM TOTAL VOTE FOR TOTAL VOTE WITHHELD FROM
EXPIRING IN 2000 EACH DIRECTOR EACH DIRECTOR
---------------- ------------- ------------------------
<S> <C> <C>
Kenneth G. Langone 7,111,241 30,098
Eugene L. Step 7,111,046 30,293
Sari Zalcberg 7,111,061 30,278
</TABLE>
Messrs. Charles Asher, Frank Borman and Jack Hight continued as Class
II directors whose term expires at the Annual Meeting of Shareholders to be held
in 1998. Messrs. Hank Asher, Gary E. Erlbaum and Thomas Simpson continued as
Class III directors whose term expires at the Annual Meeting of Shareholders to
be held in 1999.
(B) Approved a proposed amendment to the Company's Amended and
Restated Stock Option Plan to increase the number of authorized
shares from 900,000 to 1,500,000 shares available for issuance
under the Amended and Restated Stock Option Plan. The vote on this
amendment was as follows:
FOR 5,977,692
AGAINST 35,764
ABSTAIN 2,269
BROKER NON-VOTES 1,125,614
(C) Ratified the selection of Deloitte & Touche LLP as the independent
public accountants of the Company for the fiscal year ending
December 31, 1997. The vote on this matter was as follows:
FOR 7,137,693
AGAINST 2,308
ABSTAIN 1,338
BROKER NON-VOTES 0
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ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1* Financial Data Schedule
- ------------
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DBT ONLINE, INC.
/s/ TIMOTHY M. LEONARD
--------------------------------------------
TIMOTHY M. LEONARD
Vice President, Finance, Treasurer
and Chief Financial Officer
(Duly authorized officer and
chief financial officer)
Date: August 11, 1997
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 52,134,900
<SECURITIES> 0
<RECEIVABLES> 3,920,100
<ALLOWANCES> 274,000
<INVENTORY> 0
<CURRENT-ASSETS> 56,397,500
<PP&E> 7,998,500
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,284,900
<CURRENT-LIABILITIES> 5,645,700
<BONDS> 0
0
0
<COMMON> 909,600
<OTHER-SE> 66,560,100
<TOTAL-LIABILITY-AND-EQUITY> 77,284,900
<SALES> 13,100,600
<TOTAL-REVENUES> 16,435,600
<CGS> 6,672,200
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,306,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (269,400)
<INCOME-PRETAX> 3,726,700
<INCOME-TAX> 1,416,100
<INCOME-CONTINUING> 2,310,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,310,600
<EPS-PRIMARY> .28
<EPS-DILUTED> 0
</TABLE>
