<PAGE> 1
UNITED STATES
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 MARCH 31, 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 000-24389
VASCO DATA SECURITY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-4169320
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1901 SOUTH MEYERS ROAD, SUITE 210
OAKBROOK TERRACE, ILLINOIS 60181
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (630) 932-8844
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.
Yes X No
----- -----
As of April 25, 2000, 27,293,951 shares of the Company's Common Stock,
$.001 par value per share ("Common Stock"), were outstanding.
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VASCO DATA SECURITY INTERNATIONAL, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
December 31, 1999 and March 31, 2000 (Unaudited)................... 3
Consolidated Statements of Operations (Unaudited)
for the three months ended March 31, 1999 and 2000................. 4
Consolidated Statements of Comprehensive Loss (Unaudited)
for the three months ended March 31, 1999 and 2000................. 5
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1999 and 2000................. 6
Notes to Consolidated Financial Statements......................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 11
SIGNATURES.................................................................. 12
- --------------------
This report contains the following trademarks of the Company, some of which
are registered: VASCO, AccessKey, VACMan Server and VACMan/CryptalPak,
AuthentiCard and Digipass.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1999 2000
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,576,494 $ 3,435,188
Accounts receivable, net of allowance
for doubtful accounts of $120,216
and $121,582 in 1999 and 2000,
respectively 2,871,367 3,409,678
Inventories, net 805,382 796,824
Prepaid expenses 157,620 285,600
Deferred income taxes 83,000 83,000
Other current assets 925,334 830,041
------------ ------------
Total current assets 7,419,197 8,840,331
Property and equipment
Furniture and fixtures 1,246,555 1,287,957
Office equipment 1,013,870 1,085,323
------------ ------------
2,260,425 2,373,280
Accumulated depreciation (1,070,046) (1,053,057)
------------ ------------
1,190,379 1,320,223
Goodwill and other intangibles, net of
accumulated amortization of $3,134,000
and $3,287,161 in 1999 and 2000,
respectively 1,989,960 1,788,065
Prepaid royalties and other assets 1,718,493 1,717,556
------------ ------------
TOTAL ASSETS $ 12,318,029 $ 13,666,175
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 639,322 $ 463,287
Accounts payable 2,020,465 875,234
Unearned income 667,501 872,812
Accrued expenses 1,618,739 3,530,598
------------ ------------
Total current liabilities 4,946,027 5,741,931
Long-term debt, including stockholder note
of $5,000,000 in 1999 and 2000,
respectively 8,408,862 8,836,837
STOCKHOLDERS' DEFICIT:
Preferred stock, $.01 par value;
500,000 shares authorized; none
issued and outstanding - -
Common stock, $.001 par value -
75,000,000 shares authorized;
26,462,083 and 26,872,614 shares
issued and outstanding in 1999 and
2000, respectively 26,462 26,873
Additional paid-in capital 20,702,387 21,745,836
Accumulated deficit (21,873,340) (22,687,195)
Accumulated other comprehensive income-
cumulative translation adjustment 107,631 1,893
------------ ------------
Total stockholders' deficit (1,036,860) (912,593)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 12,318,029 $ 13,666,175
============ ============
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
1999 2000
------------ ------------
Net revenues $ 4,818,254 $ 5,551,927
Cost of goods sold 1,889,801 1,862,954
------------ ------------
Gross profit 2,928,453 3,688,973
------------ ------------
Operating costs:
Sales and marketing 1,402,660 2,162,637
Research and development 976,498 941,605
General and administrative 938,726 1,160,664
------------ ------------
Total operating costs 3,317,884 4,264,906
------------ ------------
Operating loss (389,431) (575,933)
Interest expense, net (227,900) (162,911)
Other expense, net (60,679) (55,470)
------------ ------------
Loss before income taxes (678,010) (794,314)
Provision for income taxes 304,181 19,541
------------ ------------
Net loss $ (982,191) $ (813,855)
============ ============
Basic and diluted net loss per share $ (0.04) $ (0.03)
============ ============
Weighted average shares outstanding 23,010,633 26,786,287
============ ============
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Three months ended March 31,
1999 2000
------------ ------------
Net loss $ (982,191) $ (813,855)
Other comprehensive loss -
cumulative translation adjustment (134,239) (105,738)
------------ ------------
Comprehensive loss $ (1,116,430) $ (919,593)
============ ============
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31,
1999 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (982,191) $ (813,855)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 252,695 255,563
Interest paid in shares of
common stock 78,750 78,750
Gain on sale of fixed assets (14,862) -
Changes in assets and liabilities:
Accounts receivable, net 773,521 (538,311)
Inventories, net (69,510) 8,558
Other current assets (73,728) (31,750)
Accounts payable 757,096 (1,145,231)
Unearned income (228,301) 205,311
Accrued expenses 199,363 1,911,859
Prepayment of royalties (450,000) -
------------ ------------
Net cash provided by (used in) operations 242,833 (69,106)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment, net (4,059) (183,511)
------------ ------------
Net cash used in investing activities (4,059) (183,511)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock
options and warrants 93,625 965,109
Proceeds from issuance of debt - 427,975
Repayment of debt (254,203) (176,035)
------------ ------------
Net cash provided by (used in)
financing activities (160,578) 1,217,049
------------ ------------
Effect of exchange rate changes on cash (134,239) (105,738)
------------ ------------
Net increase (decrease) in cash (56,043) 858,694
Cash and cash equivalents, beginning of period 1,662,084 2,576,494
------------ ------------
Cash and cash equivalents, end of period $ 1,606,041 $ 3,435,188
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 57,100 $ 43,999
Income taxes paid $ 3,945 $ 2,632
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of VASCO Data Security International, Inc. and its subsidiaries
(collectively, the "Company" or "VASCO") and have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the audited
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
During the fourth quarter of 1999, the Company acquired IntelliSoft
Corp. in a transaction which has been accounted for under the
pooling-of-interests method. Accordingly, the consolidated financial statements
for the quarter ended March 31, 1999 have been restated as if IntelliSoft had
been combined for that period.
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements, and include all adjustments, consisting only
of normal recurring adjustments, necessary for the fair presentation of the
results of the interim periods presented. All significant intercompany accounts
and transactions have been eliminated. The operating results for the interim
periods presented are not necessarily indicative of the results expected for a
full year.
NOTE 2 - BUSINESS SEGMENTS
IDENTISOFT INTELLISOFT TOTAL
Three months ended March 31, 2000 ---------- ----------- -----
Net revenues $3,513,290 $2,038,637 $5,551,927
Cost of goods sold 1,618,318 244,636 1,862,954
Gross profit 1,894,972 1,794,001 3,688,973
Three months ended March 31, 1999
Net revenues 4,308,543 509,711 4,818,254
Cost of goods sold 1,835,858 53,943 1,889,801
Gross profit 2,472,685 455,768 2,928,453
NOTE 3 - SUBSEQUENT EVENTS
During the first quarter of 2000 the Company filed a registration statement in
connection with an offering of its common stock to the public. On April 13,
2000, the Company terminated this offering due to the volatility of market
conditions.
In April 2000, long-term debt in the amount of $5,000,000 was converted into
416,666 shares of common stock of the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
VASCO designs, develops, markets and supports open standards-based
hardware and software security systems which manage and secure access to data.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q, including the "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 concerning, among other things, the
prospects, developments and business strategies for the Company and its
operations, including the development and marketing of certain new products and
the anticipated future growth in certain markets in which the Company currently
markets and sells its products or anticipates selling and marketing its products
in the future. These forward-looking statements (i) are identified by their use
of such terms and phrases as "expected," "expects," "believe," "believes,"
"will," "anticipated," "emerging," "intends," "plans," "could," "may,"
"estimates," "should," "objective," and "goals" and (ii) are subject to risks
and uncertainties and represent the Company's present expectations or beliefs
concerning future events. The Company cautions that the forward-looking
statements are qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, including (a)
risks of general market conditions, including demand for the Company's products
and services, competition and price levels and the Company's historical
dependence on relatively few products, certain suppliers and certain key
customers, and (b) risks inherent to the computer and network security industry,
including rapidly changing technology, evolving industry standards, increasing
numbers of patent infringement claims, changes in customer requirements, price
competitive bidding, changing government regulations and potential competition
from more established firms and others. Therefore, results actually achieved may
differ materially from expected results included in, or implied by these
statements.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements for the three months ended
March 31, 1999 and 2000.
Revenues
Revenues for the three months ended March 31, 2000 were $5,552,000, an
increase of $734,000, or 15%, as compared to the three months ended March 31,
1999. This was the highest quarterly revenues ever achieved by the Company and
can be attributed to strong demand in the market place for the Company's
security products.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 2000 was
$1,863,000, a decrease of $27,000, or 1.4%, as compared to the three months
ended March 31, 1999. This decrease can be attributed to savings being realized
through efficiencies in the manufacturing process and redesign of the products.
Gross Profit
The Company's gross profit for the three months ended March 31, 2000
was $3,689,000, an increase of $761,000, or 26%, as compared to the three months
ended March 31, 1999. This represents a gross margin of 66%, as compared to 61%
for the same period of 1999. This increase can be attributed to efficiencies in
the design of the products, which resulted in reduced third-party manufacturing
costs. Additionally, sales of software licenses of the Company's SnareWorks
product increased and provide higher gross margins than the Company's products
which ship with a hardware interface.
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<PAGE> 9
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended March 31, 2000
were $2,163,000, an increase of $760,000, or 54%, over the three months ended
March 31, 1999. This increase is due to increased sales efforts including, in
part, increased travel costs and an increase in marketing activities, including
the development of a company-wide marketing program and other efforts.
Additionally, the Company continues to invest in its customer support
infrastructure, which becomes more and more important as the client base
continues to expand.
Research and Development
Research and development costs for the three months ended March 31,
2000 were $942,000, a decrease of $34,000, or 4%, as compared to the three
months ended March 31, 1999. The Company has maintained expenditures for product
development at relatively stable levels over the last year.
General and Administrative Expenses
General and administrative expenses for the three months ended March
31, 2000 were $1,161,000, an increase of $222,000, or 24%, compared to the three
months ended March 31, 1999. The Company has added head count to support
administrative activities resulting from increased sales growth.
Interest Expense
Interest expense for the three months ended March 31, 2000 was
$163,000, compared to $228,000, a decrease of 29% from the same period of 1999.
This decrease is a due to a reduction in the debt base, facilitated by the
Private Placement that occurred in April 1999.
Income Taxes
Income tax expense of $20,000 for the three months ended March 31, 2000
and $304,000 for the three months ended March 31, 1999 relates to foreign
operations. The reduction in income tax expense is a result of income tax
planning strategies implemented by the Company during the fourth quarter of
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $3,435,000 at March 31,
2000, which is an increase of approximately $859,000 from $2,576,000 at December
31, 1999. As of March 31, 2000, the Company had working capital of $3,098,000.
During the first quarter of 2000, the Company used the cash provided by
operations principally for working capital needs. The Company received $965,000
during the first quarter of 2000 from the exercise of stock options and
warrants.
At March 31, 2000, the Company had lines of credit from European banks
totaling approximately $3,400,000 of which approximately $2,300,000 was unused.
Capital expenditures during the first three months of 2000 were
$184,000 and consisted primarily of computer equipment and office furniture and
fixtures.
During April 2000, a convertible note in the amount of $5,000,000 was
converted into the Company's common stock.
During the first quarter of 2000, the Company filed a registration
statement for an offering of 3,000,000 shares of common stock. The offering was
withdrawn in April 2000 due to volatile market conditions.
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The Company believes that its current cash balances, anticipated cash
generated from operations, and amounts available under its credit lines, will be
sufficient to meet its anticipated cash needs through the next twelve months.
The Company intends to seek acquisitions of businesses, products and
technologies that are complementary or additive to those of the Company. While
from time to time the Company engages in discussions with respect to potential
acquisitions, the Company has no present plans, commitments or agreements with
respect to any such acquisitions as of the date of this Form 10-Q and currently
does not have excess cash for use in making acquisitions. There can be no
assurance that any such acquisitions will be made.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 44
(FIN No. 44), "Accounting for Certain Transactions Involving Stock
Compensation," an interpretation of Accounting Principles Board Opinion No. 25,
is effective for financial statements beginning after July 1, 2000. The Company
is currently evaluating the impact of this pronouncement on its financial
statements.
During 1998, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities, which is effective for all fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes a comprehensive standard
for the recognition and measurement of derivative instruments and hedging
activities. The Company does not expect the adoption of the new standard to have
a material impact on consolidated financial position, liquidity, or results of
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during
the three month period ended March 31, 2000. For additional information, refer
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1999.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS, None.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are filed with this Form 10-Q or
incorporated by reference as set forth below:
Exhibit
Number Description
------ -----------
27 Financial Data Schedule.
- ---------------------------
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during the
quarter ended March 31, 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 14, 2000.
VASCO Data Security International, Inc.
/s/ Mario R. Houthooft
----------------------------------------------------
Mario R. Houthooft
Chief Executive Officer and President
/s/ Dennis D. Wilson
----------------------------------------------------
Dennis D. Wilson
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
27 Financial Data Schedule.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS END MARCH 31, 1999 AND 2000.
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1999 AND MARCH 31, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,435,188
<SECURITIES> 0
<RECEIVABLES> 3,531,260
<ALLOWANCES> (121,582)
<INVENTORY> 796,824
<CURRENT-ASSETS> 8,840,331
<PP&E> 2,373,280
<DEPRECIATION> (1,053,057)
<TOTAL-ASSETS> 13,666,175
<CURRENT-LIABILITIES> 5,741,931
<BONDS> 0
0
0
<COMMON> 26,873
<OTHER-SE> (939,466)
<TOTAL-LIABILITY-AND-EQUITY> 13,666,175
<SALES> 5,551,927
<TOTAL-REVENUES> 5,551,927
<CGS> 1,862,954
<TOTAL-COSTS> 4,264,906
<OTHER-EXPENSES> 55,470
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162,911
<INCOME-PRETAX> (794,314)
<INCOME-TAX> 19,541
<INCOME-CONTINUING> (813,855)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (813,855)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
