<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 April 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.
Class Outstanding at May 8, 2000
- ----------------------------- --------------------------
Common stock, $.001 par value 9,945,217
1
<PAGE>
VIISAGE TECHNOLOGY, INC.
FORM 10 - Q FOR THE QUARTER ENDED APRIL 2, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Facing Sheet........................................................... 1
Index.................................................................. 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets as of April 2, 2000 and December 31, 1999... 3
Statements of Operations for the three months
ended April 2, 2000 and March 28, 1999..................... 4
Statements of Cash Flows for the three months
ended April 2, 2000 and March 28, 1999..................... 5
Notes to Financial Statements.............................. 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 9
PART II - OTHER INFORMATION
Item 2 - Changes in Securities...................................... 13
Item 4 - Submission of Matters to a Vote of Security Holders......... 13
Item 6 - Exhibits and Reports on Form 8-K............................ 13
SIGNATURES............................................................. 14
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VIISAGE TECHNOLOGY, INC.
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
April 2, December 31,
2000 1999
------------------ ----------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 5 $ 441
Accounts receivable 3,869 3,264
Costs and estimated earnings in excess of billings 22,860 22,216
Other current assets 738 797
------------------ ----------------
Total current assets 27,472 26,718
Property and equipment, net 15,980 17,237
Other assets 664 725
------------------ ----------------
$ 44,116 $ 44,680
================== ================
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 6,805 $ 6,621
Accrued and deferred income taxes - -
Convertible subordinated debt 1,000 -
Current portion of long-term debt - 2,500
Obligations under capital leases 4,124 4,048
------------------ ----------------
Total current liabilities 11,929 13,169
Long-term debt 3,900 4,000
Convertible subordinated debt - 1,000
Obligations under capital leases 6,996 7,964
Obligations under related party capital leases 2,689 2,757
------------------ ----------------
25,514 28,890
Shareholders' equity 18,602 15,790
------------------ ----------------
$ 44,116 $ 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
------------------------------------------
April 2, March 28,
2000 1999
--------------- ----------------
<S> <C> <C>
Revenues $ 5,336 $ 4,431
Project costs 3,855 3,708
--------------- ----------------
Project margin 1,481 723
--------------- ----------------
Operating Expenses:
Sales and marketing 194 260
Research and development 18 98
General and administrative 604 510
--------------- ----------------
Total operating expenses 816 868
--------------- ----------------
Operating income (loss) 665 (145)
Interest expense 478 520
--------------- ----------------
Net income (loss) before income taxes 187 (665)
Provision for income taxes - -
--------------- ----------------
Net income (loss) 187 (665)
Preferred stock dividend 92 -
--------------- ----------------
Net income (loss) applicable to common shareholders $ 95 $ (665)
=============== ================
Net income (loss) per basic share $ .01 $ (0.08)
=============== ================
Basic Shares 9,711 8,421
=============== ================
Net income (loss) per diluted share $ .01 $ (0.08)
=============== ================
Diluted Shares 12,803 8,421
=============== ================
</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>
Three Months Ended
----------------------------------------
April 2, March 28,
2000 1999
------------------ -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 187 $ (665)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 1,151 1,101
Directors fees paid in common stock - 36
Change in operating assets and liabilities:
Accounts receivable (604) (20)
Costs and estimated earnings in excess of billings (644) (1,043)
Other current assets 59 6
Accounts payable and accrued expenses 184 1,056
Accrued and deferred taxes - (7)
----------- ----------
Net cash provided by (used for) operating activities 333 464
----------- ----------
Cash Flows from Investing Activities:
Additions to property and equipment 106 -
Decrease in other assets 61 50
----------- ----------
Net cash provided by (used for) investing activities 167 50
----------- ----------
Cash Flows from Financing Activities:
Net revolving credit borrowings - 293
Principal payments on long-term borrowings (2,600) -
Principal payments on obligations under capital leases (961) (819)
Net proceeds from issuance of common stock 2,625 10
----------- ----------
Net cash provided by (used for) financing activities (936) (516)
----------- ----------
Net increase (decrease) in cash and cash equivalents (436) (2)
Cash and cash equivalents, beginning of period 441 166
----------- ----------
Cash and cash equivalents, end of period $ 5 $ 164
=========== ==========
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 458 $ 462
=========== ==========
Cash paid during the period for income taxes $ - $ -
=========== ==========
Non Cash Activities:
Issuance of stock options $ - $ 35
=========== ==========
Conversion of preferred stock to common stock $ 606 $ -
=========== ==========
</TABLE>
5
<PAGE>
The accompanying notes are an integral part of these financial statements.
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 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 a separate biometrics division to
respond to the growing market interest in biometric 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. Since June 1, 1998, the Company has operated in two segments.
Amounts for the biometrics division prior to the reorganization are not
material.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial data as of April 2, 2000 and December 31, 1999, and
for the three month period ended April 2, 2000 and March 28, 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 condensed
financial statements were derived from audited financial statements, but do 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 April 2, 2000 and for the three
month period April 2, 2000 and March 28, 1999, have been made. The results of
operations for the period ended April 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 that
affect the reported amounts of assets and liabilities and disclosure
6
<PAGE>
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.
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 2,999,594, the conversion of convertible subordinated
debt, the conversion of convertible preferred stock, and stock warrants are not
reflected in the March 28, 1999 dilutive net loss per share calculation because
their effects are antidilutive. The impact of options outstanding of 1,860,991,
the conversion of convertible subordinated debt, the conversion of convertible
preferred stock and warrants are reflected in the April 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, the Company is approximately 59% owned subsidiary of Lau Technologies
(Lau). 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 5,432,864
purchased by Lau from Daozeng Lu and Simon Lu, and all improvements thereto,
which 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 Lau for each unit sold or licensed by Viisage. The agreement also
requires the issuance of 50,000 shares of Viisage 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 September 26, 1999, no royalties have 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 $3.1 million outstanding at
April 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
is to be funded following the effectiveness of a registration statement on Form
S-3), we 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, we issued 244,948 of these shares of
common stock to SRI, and agreed to issue the balance to SRI upon the funding of
$1,500,000 following the effectiveness of this registration statement. 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
7
<PAGE>
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 Viisage 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 a
warrant to purchase 46,875 shares has an exercise price of $12.35 per share, and
a warrant to purchase 28,125 shares has an exercise price of one hundred thirty
percent (130%) of the current market price as of the applicable date following
the effectiveness of this registration statement.
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
April 2, 2000 and March 28, 1999, three customers each accounted for more than
10% of the Company's revenues and an aggregate of approximately 41% and 50%
respectively, of revenues for the period.
Business Segment Information
(in thousands)
Three Months Ended
---------------------
April 2, March 28,
2000 1999
-------- ----------
Revenues:
Systems integration division $ 5,198 $ 4,431
Biometrics division 138 -
-------- --------
$ 5,336 $ 4,431
======== ========
Operating Income (Loss)
Systems integration division $ 1,065 $ 387
Biometrics division (400) (532)
-------- --------
$ 665 $ (145)
======== ========
8
<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 first
three months of 2000 were approximately $5,336,000, compared to approximately
$4,431,000 for the first three months of 1999. The 20.4% increase in revenue
between the two three-month periods was primarily a result of contract
extensions with the State of Ohio and the State of Arizona and new contracts
with the States of Maryland and South Carolina and the Wisconsin Department of
Corrections.
Gross margins increased to 27.8% in the first quarter of 2000 from 16.3% in the
first 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.
Sales and marketing expenses decreased approximately $66,000 in the first
quarter of 2000 from the first quarter of 1999. This represents a decrease to
3.6% from 5.9% 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 decreased approximately $80,000 in the first
quarter of 2000 from the first quarter of 1999. This represents a decrease to
.3% from 2.2% of revenue for the quarter to quarter period. The decrease is due
principally to receiving contracts that fund the Company's research and
development within the contract. 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 $94,000 in the
first quarter of 2000 from the first quarter of 1999, a decrease to 11.3% from
11.5 % of revenue. The increase in expenses is due principally to the increase
in the business volume.
Interest expense decreased approximately $42,000 in the first quarter of 2000
over the first quarter of 1999. This represents a decrease to 9.0% from 11.8% of
revenue for the quarter to quarter period. This decrease reflects a reduction in
borrowings during 2000.
No provision for additional tax benefit has been made in the current period due
to the uncertainty of when such benefit will be realized. The Company did not
record a tax benefit for the remaining net operating loss due to the uncertainty
of when such benefit will be realized.
9
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
None.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents were approximately $5,000 at April 2, 2000, a decrease of
approximately $436,000 from December 31, 1999. The decrease is primarily the net
result of the cash generated by operating and net proceeds from stock activities
and the reduction of the borrowings against the line of credit from $6,500,000
on December 31, 1999 to $3,900,000 on April 2, 2000 as well as a reduction in
lease financing debt.
Accounts receivable increased approximately 18.5% from April 2, 2000 to December
31, 1999 due to an improvement in collections.
Costs and estimated earnings in excess of billings increased approximately 2.9%
from April 2, 2000 to December 31, 1999, 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 has a revolving credit facility with a commercial bank that provides
for borrowings of up to $6.5 million through June 30, 2000 at the prime rate
plus 1%. The revolving credit 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. The
revolving credit facility also requires the Company to raise funds, as needed,
from other sources to cover biometrics division expenses. These sources are
expected to include a combination of biometrics division revenues, subordinated
debt and equity capital.
In March 2000, the Company received a commitment letter from a commercial bank
to provide a new revolving credit facility to the Company through April 2002.
Under this commitment, the revolving credit facility will provide for borrowings
of up to $4 million 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. The accompanying financial statements reflect this
commitment.
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 April 2, 2000, the Company had approximately $10.8 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 $3.1 million outstanding at April 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 prior to January 1,
2001 at $1.26 per share. As of
10
<PAGE>
April 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
is to be funded following the effectiveness of a registration statement on Form
S-3), we 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, we issued 244,948 of these shares of
common stock to SRI, and agreed to issue the balance to SRI upon the funding of
$1,500,000 following the effectiveness of this registration statement. 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
Viisage 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 a
warrant to purchase 46,875 shares has an exercise price of $12.35 per share, and
a warrant to purchase 28,125 shares has an exercise price of one hundred thirty
percent (130%) of the current market price as of the applicable date following
the effectiveness of this registration statement.
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 our 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.
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
11
<PAGE>
could differ materially from expectations. Certain factors 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.
12
<PAGE>
VIISAGE TECHNOLOGY, INC.
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
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
is to be funded following the effectiveness of a registration statement on Form
S-3), we 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, we issued 244,948 of these shares of
common stock to SRI, and agreed to issue the balance to SRI upon the funding of
$1,500,000 following the effectiveness of this registration statement. 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
Viisage 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 a
warrant to purchase 46,875 shares has an exercise price of $12.35 per share, and
a warrant to purchase 28,125 shares has an exercise price of one hundred thirty
percent (130%) of the current market price as of the applicable date following
the effectiveness of this registration statement.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information required under this item is incorporated herein by
reference from the material contained under the caption "Proposal 2- Amendment
to 1996 Viisage Management Stock Option Plan" and "Proposal 3- Amendment to 1996
Viisage Director Stock Option Plan" in the registrant's definitive proxy
statement dated April 7, 2000.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
13
<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: May 12, 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
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q FOR THE
THREE MONTHS ENDED APRIL 2, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 3,869
<ALLOWANCES> 0
<INVENTORY> 22,860<F1>
<CURRENT-ASSETS> 738
<PP&E> 15,980
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,116
<CURRENT-LIABILITIES> 11,929
<BONDS> 13,585<F2>
0
0
<COMMON> 0
<OTHER-SE> 18,602
<TOTAL-LIABILITY-AND-EQUITY> 44,116
<SALES> 5,336
<TOTAL-REVENUES> 5,336
<CGS> 3,855
<TOTAL-COSTS> 4,671<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 478
<INCOME-PRETAX> 187
<INCOME-TAX> 0
<INCOME-CONTINUING> 187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 92<F3>
<NET-INCOME> 95
<EPS-BASIC> .01
<EPS-DILUTED> .01
<FN>
<F1>Represents costs and estimated earnings in excess of billings
<F2>Represents obligations under capital leases and long-term debt
<F3>Includes project costs and operating expenses
<F4>Represents the Preferred stock dividends
</FN>
</TABLE>
