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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, 1999
[ ] 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 1-13333
DBT ONLINE, INC.
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(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
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(Address of Principal Executive Offices)
Las Vegas, Nevada 89103
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(702) 257-1112
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(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, 1999 was 19,002,663.
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DBT ONLINE, INC.
TABLE OF CONTENTS
<TABLE>
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Page
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998..................................................................3
Consolidated Statements of Operations for the Three Months Ended June 30, 1999
and 1998...............................................................................4
Consolidated Statements of Operations for the Six Months Ended June 30, 1999
and 1998...............................................................................5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999
and 1998...............................................................................6
Notes to Consolidated Financial Statements......................................................7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................9
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..............................................................................15
Item 2. CHANGES IN SECURITIES..........................................................................15
Item 3. DEFAULTS UPON SENIOR SECURITIES................................................................15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................15
Item 5. OTHER INFORMATION..............................................................................16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................................16
Signature........................................................................................................17
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
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
At June 30, At December 31,
1999 1998
------------ ---------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,002 $21,324
Accounts receivable, less allowance: June 30, 1999 - $405
December 31, 1998 - $399 12,074 9,409
Short-term investments 24,651 25,840
Prepaid expenses and other current assets 2,562 2,422
Prepaid income taxes 494
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Total current assets 64,783 58,995
Property and equipment, net 21,283 18,806
Patents, less amortization: June 30, 1999 - $4,860
December 31, 1998 - $4,012 8,983 9,830
Goodwill, less amortization: June 30, 1999 - $1,597
December 31, 1998 - $1,170 5,335 4,637
Other assets 240 103
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TOTAL ASSETS $100,624 $92,371
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 6,367 $ 3,273
Due to other patent interest holders 1,781 1,394
Income taxes payable 406
-------- -------
Total current liabilities 8,148 5,073
DEFERRED INCOME TAXES 3,154 3,405
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 5,000,000 shares
authorized; no shares issued or outstanding
Common stock, $.10 par value, 100,000,000 shares authorized
19,002,663 shares and 18,905,762 shares issued and outstanding
at June 30, 1999 and December 31, 1998, respectively 1,900 1,890
Additional paid-in capital 71,515 69,559
Retained earnings 16,130 12,444
Accumulated other comprehensive loss (223)
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Total stockholders' equity 89,322 83,893
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $100,624 $92,371
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</TABLE>
See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------
1999 1998
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(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 18,060 $ 12,997
Patent royalties 1,496 1,745
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Total revenues and royalties 19,556 14,742
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Cost of revenues 7,749 6,248
Sales and marketing 3,045 1,900
Research and development 1,022 634
General and administrative 4,871 3,790
Merger and acquisition costs 817 --
----------- -----------
Total expenses 17,504 12,572
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Income from operations 2,052 2,170
Interest income, net 460 507
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Income before income taxes 2,512 2,677
Provision for income taxes 857 896
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Net income $ 1,655 $ 1,781
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Net income per common share (basic) $0.09 $0.09
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Weighted average shares outstanding (basic) 18,979,900 18,899,400
=========== ===========
Net income per common share (diluted) $0.08 $0.09
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Weighted average shares outstanding (diluted) 20,294,200 19,702,800
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES,
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
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1999 1998
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(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 34,595 $ 25,401
Patent royalties 3,149 3,460
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Total revenues and royalties 37,744 28,861
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Cost of revenues 15,181 12,445
Sales and marketing 5,331 3,378
Research and development 2,201 1,297
General and administrative 9,650 7,781
Merger and acquisition costs 817 --
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Total expenses 33,180 24,901
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Income from operations 4,564 3,960
Interest income, net 903 1,104
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Income before income taxes 5,467 5,064
Provision for income taxes 1,862 1,704
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Net income $ 3,605 $ 3,360
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Net income per common share (basic) $0.19 $0.18
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Weighted average shares outstanding (basic) 18,947,300 18,895,100
=========== ===========
Net income per common share (diluted) $0.18 $0.17
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Weighted average shares outstanding (diluted) 19,972,100 19,760,500
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</TABLE>
See notes to consolidated financial statements.
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DBT ONLINE, INC. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
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1999 1998
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(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,605 $ 3,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,133 3,571
Deferred taxes (251) (251)
Stock issued for employee benefit plan 142 242
Changes in operating assets and liabilities:
Accounts receivable (2,660) (1,585)
Prepaid expenses and other current assets (133) (533)
Accounts payable and accrued
liabilities 2,973 383
Due to other patent interest holders 387 285
Income taxes payable (900) (239)
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Net cash provided by operating
activities 7,296 5,233
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchased (5,231) (8,014)
Cash paid for acquisition, net of cash acquired (436)
(Increase) decrease in other assets (133) 238
Proceeds from maturity of investments 966 7,309
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Net cash used in investing activities (4,834) (467)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 1,823 172
Payments on long-term debt (607)
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Net cash provided by financing
activities 1,216 172
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NET INCREASE IN CASH AND CASH EQUIVALENTS 3,678 4,938
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 21,324 7,913
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $25,002 $12,851
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</TABLE>
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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, 1998.
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of DBT Online, Inc. (the "Company") and its wholly owned subsidiaries. The
interim consolidated financial statements as of June 30, 1999 and for the three
and six months ended June 30, 1999 and 1998 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. BUSINESS COMBINATIONS
On May 26, 1999, the Company acquired all of the common stock of
WinSHAPES for approximately $442 in cash plus the payment of liabilities in
the amount of $704. WinSHAPES is a company engaged in the development of
software that converts data into graphic illustrations that visualize
interrelationships among people, businesses, vehicles and other assets. The
transaction was accounted for as a purchase and the Company's results of
operations include the results of WinSHAPES since the date of acquisition.
Goodwill resulting from this transaction is $1,125, and is being amortized on a
straight-line basis over seven years. Pro forma operating information is not
provided for this acquisition because its effects on the results of operation
are not material.
On May 6, 1999, the Company acquired I.R.S.C., Inc. ("IRSC"), pursuant
to the merger (the "IRSC Merger") of a wholly owned subsidiary of the Company,
with and into IRSC. Upon consummation of the IRSC Merger, IRSC became a wholly
owned subsidiary of the Company. IRSC is a provider of court records and other
public information used to conduct pre-employment screening and other anti-fraud
due diligence services for business customers.
As a result of the IRSC Merger, each share of IRSC common stock was
converted into the right to receive approximately 1.43 shares of Company common
stock or 432,346 common shares of the Company in the aggregate. The IRSC Merger
was accounted for as a pooling-of-interests, and accordingly, the Company's
financial statements for periods prior to the IRSC Merger have been restated to
include the results of IRSC for all periods presented. Details of the results of
operations of the Company and IRSC for the three months ended March 31, 1999
(the end of the interim period nearest the date that the combination was
consummated) and the six months ended June 30, 1998 are as follows:
Three Months Six Months
Ended Ended
March 31, 1999 June 30, 1998
-------------- -------------
Revenues:
Company $ 16,442 $25,470
IRSC 1,746 3,391
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Combined $ 18,188 $28,861
========= =======
Net income:
Company $ 1,871 $ 3,308
IRSC 79 52
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Combined $ 1,950 $ 3,360
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NOTE 3. COMPREHENSIVE INCOME
Comprehensive income for the three and six months ended June 30, 1999
are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net income $ 1,655 $ 1,781 $ 3,605 $ 3,360
Adjustment to reconcile net income
to total comprehensive income:
Unrealized loss on investments (194) (223)
-------- -------- -------- --------
Comprehensive income $ 1,461 $ 1,781 $ 3,382 $ 3,360
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</TABLE>
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following should be read in conjunction with the consolidated
financial statements and the notes thereto contained in the Company's 1998 Form
10-K. 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
We are a leading nationwide provider of online public records data and
other publicly available information operating through our Electronic
Information Group (EIG). We also operate in the patent exploitation and
enforcement business through our Patent Enforcement Group (PEG). EIG provides
online integrated database services and related reports to law enforcement and
other government agencies, law firms, insurance companies, and licensed
investigation companies. PEG exploits and enforces two laser patents, generating
its revenues through patent royalties.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES
EIG's revenues increased 39.0% to $18,060 for the three months ended
June 30, 1999, from $12,997 for the same period in 1998. The increase in EIG's
revenues was attributable to increased revenue from existing customers and
revenue from new products. EIG's active customers (defined as customers
accessing the system in a given month) increased only 6.3% to 13.4 thousand at
June 30, 1999, from 12.6 thousand at June 30, 1998. We imposed a service fee in
the first quarter 1999, which eliminated a number of unprofitable customers.
PEG's revenues decreased 14.3% to $1,496 for the three months ended June 30,
1999, from $1,745 for the same period in 1998. Total consolidated revenues
increased 32.7% to $19,556 for the three months ended June 30, 1999, from
$14,742 for the same period in 1998.
COST OF REVENUES
EIG's cost of revenues increased 25.8% to $7,322 for the three months
ended June 30, 1999, from $5,821 for the same period in 1998. The increase in
EIG's cost of revenues was due primarily to increases in both data purchase
costs and depreciation expense as EIG continued to invest both in its computer
facilities and in the expansion of its databases. As a percentage of EIG's
revenues, cost of revenues decreased to 40.5% for the three months ended June
30, 1999, from 44.8% for the same period in 1998. The decrease in cost of
revenues as a percentage of EIG's revenues was due to the scale benefits
associated with our accelerated revenue growth. PEG's cost of revenues remained
the same at $427 for the three months ended June 30, 1999 and for the same
period in 1998 and consists solely of the amortization costs associated with
the purchase of the PEG's patents. Total consolidated cost of revenues increased
24.0% to $7,749 for the three months ended June 30, 1999, from $6,248 for the
same period in 1998.
SALES AND MARKETING
EIG's sales and marketing expenses increased 60.3% to $3,045 for the
three months ended June 30, 1999, from $1,900 for the same period in 1998. The
increase was primarily due to increases in advertising expenses and sales and
marketing personnel. As a percentage of EIG's revenues, sales and marketing
expenses increased to 16.9% for the three months ended June 30, 1999, from
14.6% for the same period in 1998. This increase was attributable to a greater
emphasis on utilizing sales and marketing campaigns to increase revenue growth.
PEG did not have sales and marketing expenses.
RESEARCH AND DEVELOPMENT
EIG's research and development expenses increased 61.2% to $1,022 for
the three months ended June 30, 1999 from $634 for the same period in 1998. As
a percentage of EIG's revenues, research and development expenses increased to
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5.7% for the three months ended June 30, 1999, from 4.9% for the same period in
1998. The increase was primarily due to an increase in both salaries and
personnel associated with our new product development efforts. PEG did not have
research and development expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
EIG's general and administrative expenses increased 31.1% to $4,620
for the three months ended June 30, 1999, from $3,524 for the same period in
1998. This increase was due to increases in occupancy expenses, payroll, and
other expenses related to the reorganization of our administrative
infrastructure. As a percentage of EIG's revenues, general and administrative
expenses decreased to 25.6% for the three months ended June 30, 1999, from
27.1% for the same period in 1998. PEG's general and administrative expenses
decreased to $251 for the three months ended June 30, 1999, from $266 for the
same period in 1998. Total consolidated general and administrative expenses
increased 28.5% to $4,871 for the three months ended June 30, 1999, from $3,790
for the same period in 1998.
OPERATING PROFIT
EIG's operating profit increased 10.4% to $1,234 for the three months
ended June 30, 1999, from $1,118 for the same period in 1998. This increase was
attributable to the continued growth in revenues offset by increased cost of
revenues and other operating expenses. Operating profit for the three months
ended June 30, 1999 included one-time merger-related costs of $817. Excluding
the one-time merger-related costs, EIG's operating profit increased 83.5% to
$2,051 for the three months ended June 30, 1999. PEG's operating profit
decreased 22.2% to $818 for the three months ended June 30, 1999, from $1,052
for the same period in 1998. Total consolidated operating profit decreased 5.4%
to $2,052 for the three months ended June 30, 1999, from $2,170 for the same
period in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES
EIG's revenues increased 36.2% to $34,595 for the six months ended June
30, 1999, from $25,401 for the same period in 1998. The increase in EIG's
revenues was attributable to increased revenue from existing customers and
revenue from new products. EIG's active customers (defined as customers
accessing the system in a given month) increased only 6.3% to 13.4 thousand at
June 30, 1999, from 12.6 thousand at June 30, 1998. We imposed a service fee in
the first quarter 1999, which eliminated a number of unprofitable customers.
PEG's revenues decreased 9.0% to $3,149 for the six months ended June 30, 1999,
from $3,460 for the same period in 1998. Total consolidated revenues increased
30.8% to $37,744 for the six months ended June 30, 1999, from $28,861 for the
same period in 1998.
COST OF REVENUES
EIG's cost of revenues increased 23.6% to $14,328 for the six months
ended June 30, 1999, from $11,591 for the same period in 1998. The increase in
EIG's cost of revenues was due primarily to increases in both data purchase
costs and depreciation expense as EIG continued to invest both in its computer
facilities and in the expansion of its databases. As a percentage of EIG's
revenues, cost of revenues decreased to 41.4% for the six months ended June 30,
1999, from 45.6% for the same period in 1998. The decrease in cost of revenues
as a percentage of EIG's revenues was due to the scale benefits associated with
our accelerated revenue growth. PEG's cost of revenues remained substantially
constant at $853 for the six months ended June 30, 1999, compared to $854 for
the same period in 1998, and consisted solely of the amortization of costs
associated with the purchase of PEG's patents. Total consolidated cost of
revenues increased 21.9% to $15,181 for the six months ended June 30, 1999, from
$12,445 for the same period in 1998.
SALES AND MARKETING
EIG's sales and marketing expenses increased 57.8% to $5,331 for the
six months ended June 30, 1999, from $3,378 for the same period in 1998. The
increase was primarily due to increases in advertising expenses and sales and
marketing personnel. As a percentage of EIG's revenues, sales and marketing
expenses increased to 15.4% for the six months ended June 30, 1999, from 13.3%
for the same period in 1998. This increase was attributable to a greater
emphasis on utilizing sales and marketing campaigns to increase revenue growth.
PEG did not have sales and marketing expenses.
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RESEARCH AND DEVELOPMENT
EIG's research and development expenses increased 69.7% to $2,201 for
the six months ended June 30, 1999, from $1,297 for the same period in 1998. As
a percentage of EIG's revenues, research and development expenses increased to
6.4% for the six months ended June 30, 1999, from 5.1% for the same period in
1998. The increase was primarily due to an increase in both salaries and
personnel associated with our new product development efforts. PEG did not have
research and development expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
EIG's general and administrative expenses increased 26.6% to $9,125
for the six months ended June 30, 1999, from $7,207 for the same period in
1998. This increase was due to increases in occupancy expenses, payroll, and
other expenses related to the reorganization of our administrative
infrastructure. As a percentage of EIG's revenues, general and administrative
expenses decreased to 26.4% for the six months ended June 30, 1999, from 28.4%
for the same period in 1998. PEG's general and administrative expenses
decreased to $525 for the six months ended June 30, 1999, from $574 for the
same period in 1998. Total consolidated general and administrative expenses
increased 24.0% to $9,650 for the six months ended June 30, 1999, from $7,781
for the same period in 1998.
OPERATING PROFIT
EIG's operating profit increased 44.9% to $2,793 for the six months
ended June 30, 1999, from $1,928 for the same period in 1998. This increase was
attributable to the continued growth in revenues offset by increased cost of
revenues and other operating expenses. Operating profit for the six months ended
June 30, 1999 included one-time merger-related costs of $817. Excluding the
one-time merger-related costs, EIG's operating profit increased 87.2% to $3,610
for the six months ended June 30, 1999. PEG's operating profit decreased 12.8%
to $1,771 for the six months ended June 30, 1999, from $2,032 for the same
period in 1998. Total consolidated operating profit increased 15.3% to $4,564
for the six months ended June 30, 1999, from $3,960 for the same period in 1998.
INTEREST INCOME
Net interest income was $903 for the six months ended June 30, 1999,
compared to $1,104 for the same period in 1998. The decrease was due to lower
cash and investment balances as our capital expenditures increased
significantly in 1998, reducing our beginning cash balance in 1999.
INCOME TAXES
Our effective income tax rate was 34% for the six months ended June
30, 1999 compared to 34% for the same period in 1998. The effective tax rates
for both of these periods was favorably impacted by non-taxable interest
income and reduced state income taxes.
NET INCOME
Our net income increased 7.3% to $3,605 for the six months ended June
30, 1999, from $3,360 for the same period in 1998. The increase was primarily
due to the increase in the operating profit of EIG, offset by the reduced
operating profit of PEG, reduced interest income during the period and the
incurrence of non-recurring, merger-related expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $7,296 for the six months ended
June 30, 1999, compared to $5,233 for the same period in 1998. We had working
capital at June 30, 1999 of $56,635 (including cash, cash equivalents and
marketable securities of $49,653) compared to $53,922 (including cash, cash
equivalents
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and marketable securities of $47,164) at December 31, 1998. We expect to fund
future working capital requirements with our existing cash and short-term
investment balances and with cash generated from operations.
Capital expenditures were $5,231 for the six months ended June 30,
1999, compared to $8,014 for the same period in 1998. These expenditures were
primarily attributable to the acquisition of computer equipment and, in 1998, to
leasehold improvements of our new facility in Boca Raton, Florida. We anticipate
additional capital expenditures during the next two fiscal years related to the
upgrade of our database capabilities, which we intend to fund entirely through
our cash flows from operations.
We currently have no debt and believe that our existing cash and
short-term investment balances together with our cash flows from both our EIG
and PEG operations will be sufficient to meet our anticipated cash and capital
requirements through 1999.
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.
THE YEAR 2000 ISSUE
The Year 2000 Issue relates to whether information and non-information
technology systems will be able to recognize and process date-sensitive
information in the year 2000. We rely, directly and indirectly, on information
technology systems, such as microprocessors, proprietary operating systems,
desktop computers, network hardware equipment, and applications software, to
operate our products, manage our business data and perform a variety of
administrative services, including accounting, financial reporting, payroll
processing and invoicing. We also rely on non-information technology systems,
including office equipment, security systems, and telephone systems, to execute
our day-to-day operations. In addition, third parties material to our
operations, such as suppliers, vendors, and customers, rely on information and
non-information technology systems to manage their businesses. Our most
significant Year 2000 issues relate to the Year 2000 readiness of our data
suppliers and Internet connecting service providers. The Year 2000 Issue could
affect our, or third parties', technology systems.
In order to minimize the risk of Year 2000-related losses, we began
conducting a comprehensive assessment of our Year 2000 Issues in August 1998.
The assessment focused on five areas that, if affected by the Year 2000 Issue,
could have a material adverse effect on our operations. These areas are: 1)
data storage; 2) product software used by our customers; 3) product software
used internally by us; 4) hardware; and 5) non-information technology systems.
The following is a Year 2000 status report for each of these areas, based upon
the phase of the assessment completed to date.
Data Storage
All of our data fields have been made Year 2000 compliant. We continually review
vendor-supplied data to ensure compliance is maintained. If any third party
fails to supply us with compliant data, we modify the data in order to make it
Year 2000 ready. If many third party data suppliers gave us data that was not
Year 2000 compliant, it could take us longer to make the data suitable for use
in our databases.
Product Software Used by Our Customers
Our product software is divided into two types: software written by us and
commercial software written by third parties. The following is an update on the
Year 2000 status of each of these areas:
o Software Written by Us.
Preliminary date forward testing revealed that software written by us
is Year 2000 compliant. Two software programs important to our
business and operations, AutoTrackPLUS(SM) and AutoTrackXP(SM), have
been successfully tested for Year 2000 compliance.
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o Commercial Software Written by Third Parties.
Version 8.0 of pcAnywhere, the software used to access AutoTrackPLUS,
has been certified as Year 2000 compliant by Symantec Corporation, its
manufacturer. Through testing, we have determined that earlier
versions of pcAnywhere (4.5 and 5.0 for DOS(R), 2.0 for Windows(R),
and 7.5 for Windows) are also Year 2000 compliant, except for one
two-digit year display, which does not affect the operation of these
versions. However, we expect that in the coming months, many of our
customers, as part of their Year 2000 remediation efforts, will be
switching from the earlier versions of pcAnywhere to more updated,
Year 2000-certified software programs, including AutoTrackXP.
Versions 4.0 and earlier of Microsoft Internet Explorer(R), which our
customers use to access our products, will not be tested for Year 2000
compliance by Microsoft, the manufacturer. We expect that customers
using these earlier versions will migrate their systems into Year 2000
compliance through Microsoft's Website, which provides online upgrades
of Microsoft Internet Explorer(R) at no cost.
Versions 3.x and 4.x of Netscape Navigator(R) are both Year 2000
compliant when used with Windows 95 or later operating systems. We
expect that customers using earlier versions of Netscape Navigator
will migrate their systems into Year 2000 compliance through
Netscape's Website, which provides online upgrades at no cost.
Third Party dialer applications used on the AutoTrackXP install disks
have been certified as Year 2000 compliant by the vendor.
Product Software Used Internally By Us
We have installed a real-time inventory system. We will postpone upgrading
commercial software used internally until late 1999, in order to ensure that we
obtain the most advanced versions possible.
Hardware
Desktop Machines. Most of our approximately 350 desktop machines have
been replaced with certified Year 2000 compliant Hewlett Packard
desktops as part of a company-wide computer upgrade program. Clocking
for our computer network has been centralized through a new, Year
2000-compliant system. The system controls timekeeping for all desktop
machines and servers, and ensures that all date- and time-related
codes and functions used in hardware throughout our network remain
Year 2000 compliant.
Support Machines. Support machines used by us have been manually
tested and determined to be Year 2000 compliant.
Servers. Many of our computer servers have failed real-time clock
testing. However, successful date forward testing and manufacturer
statement of function have shown this failure will not materially
affect the operation of the servers. Further Year 2000-related testing
of the servers will be conducted as a safeguard.
Network Hardware. Our network hardware includes routers, hubs,
switches, CD-ROM towers, print servers, and communication servers.
Hewlett Packard, our hardware vendor, has certified approximately 80%
of this network hardware as Year 2000 compliant. Cisco Systems has
certified the remaining 20% of the network hardware. We have confirmed
these results through successful date forward testing.
Communications Hardware. Our communications hardware includes modems
and DSU/CSUs. These systems have all been successfully date forward
tested.
Non-Information Technology Systems
Network Connectivity. We rely on telecommunications service providers
to connect us to the Internet. If our service providers' systems were
not Year 2000 compliant and failed, we could be prevented from
receiving orders or delivering search results. By December 31, 1999, we
intend to be working with three internet service providers, each of
whom could exclusively service our business. We believe that at least
one of our three telecommunications service providers will be Year 2000
compliant, however, there can be no assurance that all three or any of
the three, will be Year 2000 ready.
Phone System. Siemens has certified our phone system as Year 2000
compliant.
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<PAGE> 14
Security System. Security software has been certified as Year 2000
compliant. The vendor is currently testing the security hardware for
Year 2000 compliance.
Office Environmental System. Our office environmental system is
currently manually controlled and Year 2000 compliant. However, new
automated controls for the environmental system are being installed.
We plan to test these controls for Year 2000 compliance after they are
installed.
Telephone and Utility System. The Year 2000 status of our telephone
and utility systems has not been assessed. We expect that these
systems will be made Year 2000 compliant by their providers.
Summary
We expect to be fully Year 2000 compliant by November 1999. Given our efforts
to identify and address our Year 2000 Issues, we do not believe that Year 2000
Issues will have a material adverse effect on our business, results of
operations, or financial condition. We estimate that the total cost of
addressing our Year 2000 Issue will be approximately $300. All costs associated
with the remediation of the Year 2000 Issue will be expensed as incurred. We
will develop a contingency plan for dealing with Year 2000 Issues by October
1999.
Risks Associated with the Year 2000 Issue
Our failure to correct a material Year 2000-related problem in our
information or non-information technology systems could result in an
interruption in, or a failure of, our normal business activities or operations.
We depend on information contained primarily in electronic format in databases
and computer systems maintained by third parties, including governmental
agencies. We also rely on telecommuncations service providers to connect us to
the Internet. The disruption of third-party systems or the failure of our
systems to properly interact with these third-party systems could prevent us
from receiving orders or delivering search results in a timely manner, or could
affect our ability to refresh our data. Our inability to bring historical data
files, date fields or information purchased from vendors into Year 2000
compliance could have a material adverse effect on our business, financial
condition, and results of operations. In addition, we are currently unable to
predict the effect that the Year 2000 Issue will have on our suppliers, or the
extent to which we would be vulnerable to our suppliers' failures to remediate
their Year 2000 Issues on a timely basis. The failure of a major supplier to
convert its systems on a timely basis or in a manner that is incompatible with
our systems could have a material adverse effect on us.
Page 14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Our IRSC subsidiary, its former chairman and principal shareholder and
DBT Online are parties to a lawsuit against a group of eight companies that used
to do business with IRSC. These eight companies allege that IRSC was obligated
to enter into a merger agreement with them and that the former chairman of IRSC
was obligated to work for the company surviving the merger. The companies also
allege that we interfered with the obligations of IRSC and its former chairman
by acquiring IRSC. When these companies threatened to sue, we filed a lawsuit
against them in federal court to establish jurisdiction of the action in
Florida. We believe we have meritorious defenses to these companies' claims.
We also have brought a lawsuit against High Tech Data Services and its
affiliates and principals, with whom we had a non-competition and non-disclosure
agreement. We believe, and our lawsuit alleges, that High Tech violated the
non-competition and non-disclosure agreement, infringed our trade and service
marks and misappropriated our trade secrets. The court has scheduled a trial in
October 1999 to decide our lawsuit. We believe that we will be successful on
some, if not all, of our claims against High Tech.
From time to time, we are involved in litigation in the ordinary course
of business, including litigation in connection with non-competition agreements
our employees sign and the alleged infringement of intellectual property rights.
Except the IRSC and High Tech litigations discussed above, we are not currently
involved in, and do not know of, any material litigation against us.
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 18,
1999, 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 four Class III 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 2002 Each Director Each Director
---------------- ------------- -------------
<S> <C> <C>
Garry Betty 17,633,860 8,247
Gary E. Erlbaum 17,633,946 8,161
Bernard Marcus 17,663,946 8,161
Thomas J. Quarles 17,542,314 94,793
</TABLE>
Messrs. Kenneth G. Langone, Charles A. Lieppe, Eugene L. Step and Ms.
Sari Zalcberg continued as Class I directors whose term expires at the Annual
Meeting of Shareholders to be held in 2000. Messrs. Frank Borman, Jerold E.
Glassman, Jack Hight and Andrall E. Pearson continued as Class II directors
whose term expires at the Annual Meeting of Shareholders to be held in 2001.
(B) Approved to ratify the adoption of the Deferred Compensation Plan
for Non-Employee Directors. The vote on this matter was as follows:
FOR 17,559,895
AGAINST 71,994
ABSTAIN 10,218
BROKER NON-VOTES 0
(C) Ratified the selection of Deloitte & Touche LLP as the independent
public accountants of the Company for the fiscal year ending
December 31, 1999. The vote on this matter was as follows:
FOR 17,632,829
AGAINST 3,166
ABSTAIN 6,112
BROKER NON-VOTES 0
Page 15
<PAGE> 16
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1* Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
- ------------
* Filed herewith.
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<PAGE> 17
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 13, 1999
Page 17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 25,002
<SECURITIES> 24,651
<RECEIVABLES> 12,479
<ALLOWANCES> (405)
<INVENTORY> 0
<CURRENT-ASSETS> 64,783
<PP&E> 37,000
<DEPRECIATION> (15,717)
<TOTAL-ASSETS> 100,624
<CURRENT-LIABILITIES> 8,148
<BONDS> 0
0
0
<COMMON> 1,900
<OTHER-SE> 87,422
<TOTAL-LIABILITY-AND-EQUITY> 100,624
<SALES> 34,595
<TOTAL-REVENUES> 37,744
<CGS> 15,181
<TOTAL-COSTS> 15,181
<OTHER-EXPENSES> 17,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (903)
<INCOME-PRETAX> 5,467
<INCOME-TAX> 1,862
<INCOME-CONTINUING> 3,605
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,605
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.18
</TABLE>
