<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended July 2, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________.
Commission File Number 000-21559
VIISAGE TECHNOLOGY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3320515
---------------------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Porter Road, Littleton, MA 01460
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978)-952-2200
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [_] No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at August 7, 2000
------------------------------------------------------- ---------------------------------------------------------
Common stock, $.001 par value 10,953,615
</TABLE>
1
<PAGE>
VIISAGE TECHNOLOGY, INC.
FORM 10 - Q FOR THE QUARTER ENDED JULY 2, 2000
----------------------------------------------
INDEX
-----
Page
----
Facing Sheet.............................................. 1
Index..................................................... 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets as of July 2, 2000 and
December 31, 1999........................... 3
Statements of Operations for the
three months and six months ended
July 2, 2000 and June 27, 1999.............. 4
Statements of Cash Flows for the six months
ended July 2, 2000 and June 27, 1999........ 5
Notes to Financial Statements............... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 10
PART II - OTHER INFORMATION
Item 3 - Changes in Securities.......................... 14
Item 4 - Submission of Matters to a Vote of
Security Holders............................... 14
Item 5 - Other Information.............................. 14
Item 6 - Exhibits and Reports on Form 8-K............... 15
SIGNATURES................................................ 16
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VIISAGE TECHNOLOGY, INC.
Balance Sheets
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 2, DECEMBER 31,
2000 1999
--------------------- ---------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 790 $ 441
Accounts receivable 2,100 3,264
Costs and estimated earnings in excess of billings 26,396 22,216
Other current assets 617 797
------- -------
Total current assets 29,903 26,718
Property and equipment, net 14,848 17,237
Other assets 585 725
------- -------
$45,336 $44,680
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 8,489 $ 6,621
Convertible subordinated debt 1,000 -
Current portion of long-term debt - 2,500
Obligations under capital leases 4,191 4,048
------- -------
Total current liabilities 13,680 13,169
Long-term debt 2,875 4,000
Convertible subordinated debt - 1,000
Obligations under capital leases 6,008 7,964
Obligations under related party capital leases 2,584 2,757
------- -------
25,147 28,890
Shareholders' equity 20,189 15,790
------- -------
$45,336 $44,680
======= =======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
VIISAGE TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- -------------------------------
JULY 2, JUNE 27, JULY 2, JUNE 27,
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 6,150 $4,714 $11,486 $ 9,145
Project costs 4,475 3,870 8,330 7,578
------------- -------------- ------------- -------------
Project margin 1,675 844 3,156 1,567
------------- -------------- ------------- -------------
Operating Expenses:
Sales and marketing 160 170 354 430
Research and development 243 69 261 167
General and administrative 644 485 1,248 995
------------- -------------- ------------- -------------
Total operating expenses 1,047 724 1,863 1,592
------------- -------------- ------------- -------------
Operating income (loss) 628 120 1,293 (25)
Interest expense 434 553 912 1,073
------------- -------------- ------------- -------------
Income (loss) before income taxes 194 (433) 381 (1,098)
Provision for income taxes - - - -
------------- -------------- ------------- -------------
Net income (loss) 194 (433) 381 (1,098)
Preferred stock dividend 85 - 177 -
------------- -------------- ------------- -------------
Net income (loss) applicable to common
Shareholders $ 109 $ (433) $ 204 $(1,098)
============= ============== ============= =============
Basic net income (loss) per share $0.01 $(0.05) $0.02 $(0.13)
============= ============== ============= =============
Basic Shares 10,116 8,458 9,913 8,440
============= ============== ============= =============
Net income (loss) per diluted share $0.01 $(0.05) $0.02 $(0.13)
============= ============== ============= =============
Diluted Shares 14,110 8,458 13,908 8,440
============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
VIISAGE TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------------------------------
JULY 2, JUNE 27,
2000 1999
------------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 381 $(1,098)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 2,390 2,202
Directors fees paid in common stock _ 72
Change in operating assets and liabilities:
Accounts receivable 1,164 (145)
Costs and estimated earnings in excess of billings (4,180) (1,238)
Other current assets 180 (295)
Accounts payable and accrued expenses 1,867 672
------- --------
Net cash provided by (used for) operating activities 1,802 170
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment - -
Decrease in other assets 139 94
------- --------
Net cash provided by (used for) investing activities 188 94
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings (3,625) 670
Principal payments on obligations under capital leases (1,812) (1,805)
Principal payments on obligations under related party
capital leases (174) -
Proceeds from issuance of convertible subordinated debt - 1,000
Net proceeds from issuance of common stock 4,019 -
Net proceeds from issuance of preferred stock - 17
------- --------
Net cash provided by (used for) financing activities (1,592) (118)
------- --------
Net increase (decrease) in cash and cash equivalents 349 146
Cash and cash equivalents, beginning of period 441 166
------- --------
Cash and cash equivalents, end of period $ 790 $ 312
======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 867 $ 885
======= ========
Cash paid during the period for income taxes $ - $ -
======= ========
NON CASH ACTIVITIES:
Issuance of stock options $ - $ 35
======= ========
Conversion of preferred stock to common stock $ 895 $ -
======= ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
VIISAGE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Viisage Technology, Inc., hereafter referred to as "Viisage" or the "Company",
is a leader in the emerging field of biometrics technology and in providing
digital identification systems and solutions. The Company focuses on
identification solutions that improve personal convenience and security, deter
fraud and reduce identification program costs. Viisage combines its systems
integration and software design capabilities with its proprietary software and
hardware products and other industry standard products to create complete
customized solutions. These turnkey solutions integrate image and data capture,
create relational databases, incorporate multiple biometrics and improve
customers' ability to move and manage information. Applications can include
driver's licenses, voter registration, national ID's, law enforcement, social
services, access control and PC network and Internet access security. To date,
Viisage's primary customers have been government agencies with particular
emphasis on U.S. drivers licensing agencies.
The Company has been engaged in one business area, the development and
implementation of digital identification systems and solutions. Effective June
1, 1998, the Company reorganized its operations to create two separate
divisions, a biometrics division and a systems integration and identification
card division. The biometrics division was created to respond to the growing
market interest in biometrics solutions. The biometrics division is focused on
product, market and channel development activities in three principal areas:
facility access control, PC network and Internet access security, and real-time
large database identification and verification of individuals. The systems
integration and identification card division (SI division) focuses on Viisage's
public sector markets and serves as a channel to existing customers and the
public sector for the Company's biometric technologies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial data as of July 2, 2000 and December 31, 1999, and
for the three month and six month periods ended July 2, 2000 and June 27, 1999,
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The December 31, 1999 balance
sheet was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. These
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows as of July 2, 2000 and for the three month
and six month periods ended July 2, 2000 and June 27, 1999, have been made. The
results of operations for the period ended July 2, 2000 are not necessarily
indicative of the operating results for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These assumptions affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6
<PAGE>
Computation of Net Income (Loss) per Share
The basic net income (loss) per share calculation is computed based on the
weighted average number of shares of common stock during the period. The impact
of options outstanding of 2,510,000, the conversion of convertible subordinated
debt, the conversion of convertible preferred stock, and stock warrants are not
reflected in the June 27, 1999 dilutive net loss per share calculation because
their effects are antidilutive. The impact of certain options outstanding of
1,842,991, the conversion of convertible subordinated debt, the conversion of
convertible preferred stock, and stock warrants are reflected in the July 2,
2000 dilutive net income per share calculation.
3. INCOME TAXES
Due to the uncertainty surrounding the realization of the Company's net deferred
tax asset, the Company has provided a full valuation allowance against this
amount.
4. RELATED PARTY TRANSACTIONS AND SHAREHOLDERS' EQUITY
Currently, Lau Technologies (Lau) owns approximately 58% of the company.
Readers are referred to the "Notes to Financial Statements" section of the
Company's 1999 Annual Report to Shareholders for further discussion.
The Company has also obtained from Lau an exclusive (except for limited fields
reserved by Lau), perpetual, worldwide license to use the U.S. Patent No.
5,432,864 purchased by Lau from Daozeng Lu and Simon Lu, and all improvements
thereto. This patent relates to a system for automatically verifying the
identity of an individual using identification parameters that are carried on an
escort memory, such as an identification or credit card. This license requires
royalty payments to be made to Lau for each unit sold or licensed by the
Company. The agreement also requires the Company to issue 50,000 shares of the
Company's common stock to Lau following the royalty commencement date.
The Company has two non-exclusive license agreements with Lau, whereby Lau acts
as a distributor of the Company's "Facial Recognition" Technology for certain
European markets, U.S. airports and other end users that are federal agencies.
Lau will pay the Company royalties on profits, as defined, under these
agreements. Through July 2, 2000, no royalties had been earned.
The Company has a project lease financing arrangement with Lau that provides for
up to $5.0 million of capital lease financing with $2.9 million outstanding at
July 2, 2000. Readers are referred to the "Notes to Financial Statements"
section of the Company's 1999 Annual Report to Shareholders for further
discussion.
In January 2000, 750 shares of the series A preferred stock were converted into
259,356 shares of common stock.
On March 10, 2000, for an initial investment of $4,000,000 (of which $1,500,000
was funded in May 15, 2000, following the effectiveness of the registration
statement on Form S-3), the Company agreed to issue to Strong River Investments,
Inc. ("SRI") 391,917 shares of common stock, a closing warrant to purchase
97,979 shares of the Company's common stock, exercisable for five years at
$11.77 per share, and an adjustable warrant, exercisable at nominal
consideration during three 25 trading day periods beginning four months
following closing (which may be delayed to December 31, 2000). On March 10,
2000, the Company issued 244,948 of these shares of common stock to SRI, and in
May 2000, the company issued the remaining 146,969 to SRI. The adjustable
warrant terminates if the market value of the Company common stock exceeds
$14.28 for any 20 consecutive trading days prior to the adjustment periods. If
not terminated, the number of shares that may be acquired under the adjustable
warrant is determined by a formula that is dependent on the extent to which the
market value of the Company's common stock is less than $11.09
7
<PAGE>
per share during the adjustment periods. Subject to certain closing conditions,
two additional investments of $3,000,000 each may be invested by SRI between 150
and 170 days after the initial investment and between 120 and 140 days
thereafter on similar terms. The purchase price of the common stock for each
additional investment will be equal to 115% of the average per share market
value for the ten trading days prior to the applicable closing date and the
number of shares of common stock underlying the closing warrant will be equal to
25% of the common stock sold pursuant to each investment at an exercise price
equal to 125% of the average per share market price for the five trading days
prior to such closing date. The subsequent adjustable warrant will terminate
when the market value of the common stock on the applicable closing date exceeds
140% for any 20 consecutive trading days prior to the adjustment period. If not
terminated, the number of shares that may be acquired under the adjustable
warrant will be determined by a formula that is based on 108% of the market
value of the Company's common stock. In connection with this transaction, the
Company paid an investment banking fee of $160,000 to Cardinal Securities,
L.L.C. ("Cardinal"), and issued warrants to purchase 75,000 shares of the
Company's common stock to Cardinal exercisable for five years, of which 46,875
shares has an exercise price of $12.35 per share, and 28,125 shares has an
exercise price of $6.175 per share.
In May 2000, 100 shares of the Series A Preferred Stock were converted into
33,333 shares of common stock.
In May 2000, warrants issued through the amendment of the company's credit
agreement dated December 7, 1998 were converted into 9,184 shares of common
stock. This was a cashless exercise.
In June 2000, 280 shares of the series A preferred stock were converted into
130,806 shares of common stock.
In July 2000, 750 shares of Series B Preferred Stock were converted into 321,586
shares of common stock.
In July 2000, adjustable warrants issued through the private placement of common
stock with SRI were converted into 334,530 shares of common stock. This was a
cashless exercise.
5. BUSINESS SEGMENTS
The Company is engaged in one business, the development and implementation of
digital identification systems and solutions. Effective June 1, 1998, the
Company reorganized its operations to create two separate divisions, a
biometrics division and a systems integration and identification card division.
Since June 1, 1998, the Company has operated in two segments. Amounts for the
biometrics division prior to the reorganization are not material. The costs of
shared facilities and certain administrative services have been allocated to
each business based on actual usage or other methods that approximate actual
usage. All other costs and expenses have been allocated to each business based
on actual usage. Management evaluates segment performance based on operating
income.
Substantially all of the Company's revenues are currently derived by its systems
integration and identification card division from public sector customers and
contracts to such customers. The Company believes for the foreseeable future
that it will continue to derive a significant portion of its revenues from a
limited number of large public sector contracts. For the three months ended July
2, 2000, two customers each accounted for more than 10% of the Company's
revenues and an aggregate of approximately 47% of revenues for the period. For
the three months ended June 27, 1999, three customers each accounted for more
than 10% of the Company's revenues and an aggregate of approximately 50% of
revenues for the period. For the six months ended July 2, 2000, two customers
each accounted for more than 10% of the Company's revenues and an aggregate of
approximately 40% of revenues for the period. For the six months ended June 27,
1999, three customers each accounted for more than 10% of the Company's revenues
and an aggregate of approximately 50% of revenues for the period.
8
<PAGE>
BUSINESS SEGMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED Six Months Ended
---------------------------------------- ----------------------------------------
July 2, JUNE 27, JULY 2, JUNE 27,
2000 1999 2000 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Systems integration division $6,039 $4,714 $11,237 $9,145
Biometrics division 111 - 249 -
------ ------ ------- ------
$6,150 $4,714 $11,486 $9,145
====== ====== ======= ======
Operating Income (Loss)
Systems integration division $1,242 $ 541 $ 2,307 $ 928
Biometrics division (614) (421) (1,014) (953)
------ ------ ------- ------
$ 628 $ 120 $ 1,293 $ (25)
====== ====== ======= ======
</TABLE>
9
<PAGE>
VIISAGE TECHNOLOGY, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and accompanying notes contained in the Company's 1999
Annual Report and Form 10-K.
The following discussion and analysis contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
section below entitled "Certain Factors That May Affect Future Results." The
cautionary statements made herein should be read as being applicable to all
related forward-looking statements in this Form 10-Q.
RESULTS OF OPERATIONS
Revenues are derived principally from multi-year contracts for systems
implementation, card production and related services. Revenues for the second
quarter of 2000 were approximately $6,150,000, compared to approximately
$4,714,000 for the second quarter of 1999. The 30.5% increase in revenue between
the two three-month periods was primarily a result of new contracts and
extensions with our existing customers.
Gross margins increased to 27.2% in the second quarter of 2000 from 17.9% in the
second quarter of 1999. The increase in gross margins between the two three-
month periods is due principally to the positive impact of higher margin new
business and contract extensions on the overall revenue mix in 2000, as well as
ongoing cost cutting and control efforts by the company.
Sales and marketing expenses decreased approximately $10,000 in the second
quarter of 2000 from the second quarter of 1999. This represents a decrease to
2.6% from 3.6% of revenue for the quarter to quarter period. The decrease is
due principally to the Company's continuing efforts to control costs.
Research and development expenses increased approximately $174,000 in the second
quarter of 2000 from the second quarter of 1999. This represents an increase to
4.0% from 1.5% of revenue for the quarter to quarter period. The increase is due
principally to the company's continued investment in the biometrics division.
Research and development costs do not include amounts for specific projects that
are allocated to project costs, and do not reflect the benefits to Viisage under
license arrangements from the research and development efforts of Lau
Technologies and the Massachusetts Institute of Technology for projects that are
not directly related to the Company.
General and administrative expenses increased by approximately $159,000 in the
second quarter of 2000 from the second quarter of 1999. This represents an
increase to 10.5% from 10.3 % of revenue for the quarter to quarter periods. The
increase in expenses is due principally to the increase in the business volume.
Interest expense decreased approximately $119,000 in the second quarter of 2000
over the second quarter of 1999. This represents a decrease to 7.1% from 11.7%
of revenue for the quarter to quarter period. This decrease reflects a reduction
in borrowings during 2000.
No provision for income taxes has been made in the current period due to the
available net operating loss carry forwards. The Company did not record a tax
benefit for the remaining net operating loss carry forwards due to the
uncertainty of when such benefit will be realized.
10
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
None.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents were approximately $790,000 at July 2, 2000, an increase of
approximately $349,000 from December 31, 1999. The increase is primarily the net
result of the cash generated by operations, net proceeds from stock activities,
offset in part by the reduction of the borrowings against the line of credit
from $6,500,000 on December 31, 1999 to $2,875,000 on July 2, 2000, as well as a
reduction in lease financing debt.
Accounts receivable decreased approximately 35.7% from December 31, 1999 to July
2, 2000 due to an improvement in collections.
Costs and estimated earnings in excess of billings increased approximately 18.8%
from December 31,1999 to July 2, 2000, which reflects the effect of new contract
awards.
Historically, the Company has not made substantial capital expenditures for
facilities, office and computer equipment and has satisfied its needs in these
areas principally through leasing.
The Company also has a system project lease financing arrangement with a
commercial leasing organization. Pursuant to this arrangement, the lessor
purchases certain of our digital identification systems and leases them back to
the Company for deployment with identified and contracted customers approved by
the lessor. The lessor retains title to systems and has an assignment of the
Company's rights under the related customer contracts, including rights to use
the software and technology underlying the related systems. Under this
arrangement, the lessor bears the credit risk associated with payments by the
Company's customers, but the Company bears performance and appropriation risk
and is generally required to repurchase a system in the event of a termination
by a customer for any reason except credit default. The Company is also
required to maintain certain financial ratios and minimum levels of tangible
capital funds, as defined. These project lease arrangements are accounted for
as capital leases. The current arrangement provides for project financing of up
to $15.0 million. At July 2, 2000, the Company had approximately $9.8 million
outstanding under the lease financing arrangement. The Company has a similar
project lease financing arrangement with Lau that provides for up to $5.0
million of capital leases financing with $2.9 million outstanding at July 2,
2000.
The Company believes that it will continue to meet its debt covenants. However,
this expectation is dependent in part on achieving business forecasts. If the
Company does not meet such covenants, the bank and the lessor could require
immediate repayment of outstanding amounts.
In May 1999, the Company received a commitment from Lau to lend up to $2,000,000
in exchange for a 4% convertible subordinated note. Amounts drawn under the
note, with Lau's consent, and related accrued interest are convertible at Lau's
option into shares of the Company's common stock at any time through the
expiration date of January 1, 2001 at $1.26 per share. As of July 2, 2000, the
Company has borrowed $1,000,000 under this commitment. The Company plans to
raise additional funding, as needed, from other sources.
In January 2000, 750 shares of the series A preferred stock were converted into
259,356 shares of common stock.
On March 10, 2000, for an initial investment of $4,000,000 (of which $1,500,000
was funded in May 15, 2000, following the effectiveness of the registration
statement on Form S-3), the Company agreed to issue to Strong River Investments,
Inc. ("SRI") 391,917 shares of common stock, a closing warrant to purchase
97,979 shares of the Company's common stock, exercisable for five years at
$11.77 per share, and an adjustable warrant, exercisable at nominal
consideration during three 25 trading day periods beginning four months
following closing (which may be
11
<PAGE>
delayed to December 31, 2000). On March 10, 2000, the Company issued 244,948 of
these shares of common stock to SRI, and in May 2000, the company issued the
remaining 146,969 to SRI. The adjustable warrant terminates if the market value
of the Company common stock exceeds $14.28 for any 20 consecutive trading days
prior to the adjustment periods. If not terminated, the number of shares that
may be acquired under the adjustable warrant is determined by a formula that is
dependent on the extent to which the market value of the Company's common stock
is less than $11.09 per share during the adjustment periods. Subject to certain
closing conditions, two additional investments of $3,000,000 each may be
invested by SRI between 150 and 170 days after the initial investment and
between 120 and 140 days thereafter on similar terms. The purchase price of the
common stock for each additional investment will be equal to 115% of the average
per share market value for the ten trading days prior to the applicable closing
date and the number of shares of common stock underlying the closing warrant
will be equal to 25% of the common stock sold pursuant to each investment at an
exercise price equal to 125% of the average per share market price for the five
trading days prior to such closing date. The subsequent adjustable warrant will
terminate when the market value of the common stock on the applicable closing
date exceeds 140% for any 20 consecutive trading days prior to the adjustment
period. If not terminated, the number of shares that may be acquired under the
adjustable warrant will be determined by a formula that is based on 108% of the
market value of the Company's common stock. In connection with this transaction,
the Company paid an investment banking fee of $160,000 to Cardinal Securities,
L.L.C. ("Cardinal"), and issued warrants to purchase 75,000 shares of the
Company's common stock to Cardinal exercisable for five years, of which 46,875
shares has an exercise price of $12.35 per share, and 28,125 shares has an
exercise price of $6.175 per share.
In May 2000, 100 shares of the Series A Preferred Stock were converted into
33,333 shares of common stock.
In May 2000, warrants issued through the amendment of the company's credit
agreement dated December 7, 1998 were converted into 9,184 shares of common
stock. This was a cashless exercise.
In June 2000, the Company refinanced its existing revolving line of credit with
a new commercial bank that provides for borrowings of up to $4 million through
June 2002 at the prime rate plus 1 1/4%. The facility is secured by
substantially all of the Company's assets and requires the Company to maintain
certain financial ratios and minimum levels of earnings and tangible capital
funds, as defined.
In June 2000, 280 shares of the series A preferred stock were converted into
130,806 shares of common stock.
In July 2000, 750 shares of Series B Preferred Stock were converted into 321,586
shares of common stock.
In July 2000, adjustable warrants issued through the private placement of common
stock with SRI were converted into 334,530 shares of common stock. This was a
cashless exercise.
The Company believes that if it meets its business forecast for 2000, cash flows
from available borrowings, project leasing, operations and capital raising will
be sufficient to meet its working capital and capital expenditure needs for the
foreseeable future. There can be no assurance, however, that additional capital
will be available on favorable terms or at all. If the Company is unable to
obtain additional capital, as needed, on acceptable terms the Company may be
unable to take full advantage of future opportunities or respond to competitive
pressures, which could adversely affect the Company's business, financial
condition and results of operations.
12
<PAGE>
MARKET RISK
Except for the Company's revolving credit facility, which has a variable
interest rate, the Company has no material exposure to market risk that could
affect its future results of operations and financial condition.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in an environment that involves a number of risks, some of
which are beyond the Company's control. Forward-looking statements in this
document and those made from time to time by the Company through its senior
management are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements concerning
future plans or results are necessarily only estimates and actual results could
differ materially from expectations. Certain factors that could that could
cause or contribute to such differences include among other things:
[_] potential fluctuations in quarterly results;
[_] the size and timing of award and performance on contracts;
[_] dependence on large contracts and a limited number of customers;
[_] lengthy sales and implementation cycles;
[_] changes in management estimates incident to accounting for contracts;
[_] availability and cost of key components;
[_] market acceptance of new or enhanced products and services;
[_] proprietary technology and changing technology;
[_] competitive conditions;
[_] system performance;
[_] management of growth;
[_] dependence on key personnel;
[_] general economic and political conditions and other factors affecting
spending by customers.
Any of these factors could have a material adverse impact on the Company's
operations and financial results.
13
<PAGE>
VIISAGE TECHNOLOGY, INC.
PART II - OTHER INFORMATION
ITEM 3 - CHANGES IN SECURITIES
In May 2000, 100 shares of the Series A Preferred Stock were converted into
33,333 shares of common stock.
In May 2000, warrants issued through the amendment of the company's credit
agreement dated December 7, 1998 were converted into 9,184 shares of common
stock. This was a cashless exercise.
In June 2000, 280 shares of the series A preferred stock were converted into
130,806 shares of common stock.
In July 2000, 750 shares of Series B Preferred Stock were converted into 321,586
shares of common stock.
In July 2000, adjustable warrants issued through the private placement of common
stock with SRI were converted into 334,530 shares of common stock. This was a
cashless exercise.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following actions were voted on and approved at the Company's 2000 Annual
Meeting of Shareholders held on May 9, 2000:
1.) Board of Directors members, Denis K. Berube and Charles E. Levine,
were reelected to three-year terms. The vote was 9,269,734 and
9,270,614 respectively for, and 189,445 and 188,565 against, such
selection. The terms of Board of Directors members, Thomas J. Reilly,
Peter Nessen, Charles J. Johnson, and Harriet Mouchly-Weiss continued
after the meeting.
2.) An amendment to the Company's 1996 Management Stock Option Plan to
increase the number of shares available for issuance thereunder from
2,057,100 to 2,807,000, was approved. The vote was 6,617,607 for,
461,892 against, 11,095 abstained and 2,368,585 non-votes.
3.) An amendment to the Company's 1996 Directors Stock Option Plan to
increase the number of shares available for issuance thereunder from
201,616 to 326,616, was approved. The vote was 6,786,047 for, 294,307
against, 10,240 abstained and 2,368,585 non-votes.
4.) The selection of BDO Seidman, LLP as independent public accountants
for the Company for the year ending December 31, 2000, was ratified.
The vote was 9,441,527 for, 11,897 against, and 5,755 abstained.
ITEM 5 - OTHER INFORMATION
Not applicable
14
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.30 Security Agreement, dated June 15, 2000, between the
Registrant and Commerce Bank & Trust Co.
10.31 Collateral Assignment of "Unencumbered" Customer Contracts
dated June 15, 2000, between the Registrant and Commerce Bank
& Trust Co.
10.32 Loan Agreement, dated June 15, 2000, between the Registrant
and Commerce Bank & Trust Co.
10.33 Security Agreement, dated June 15, 2000, between the
Registrant and Commerce Bank & Trust Co.
10.34 Revolving Credit Note, dated June 15, 2000, by the Registrant
in favor of Commerce Bank & Trust Co.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
15
<PAGE>
VIISAGE TECHNOLOGY, INC.
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.
VIISAGE TECHNOLOGY, INC.
Date: August 10, 2000 By: /s/ Thomas J. Colatosti
----------------------------
Thomas J. Colatosti
President and Chief Executive Officer
By: /s/ Sean F. Mack
------------------------
Sean F. Mack
Vice President, Controller and Treasurer
16
