<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
{x} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT 1934
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT 1934
For the Quarter ended December 31, 1996
Commission file number: 0-8951
COMPARATOR SYSTEMS CORPORATION
------------------------------
(Exact name of small business issuer as specified in its business charter)
Colorado 95-3151060
(State or other jurisdiction of I.R.S. Employer
Incorporation or organization Identification No.
4350 Von Karman, Suite 180, Newport Beach, CA 92660
(Address of principal executive offices) (Zip Code)
(714) 851-4300
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the 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 the filing requirements for
at least the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: February 13, 1997
The number of shares of Registrant's common stock outstanding as of February 13,
1997 was 614,234,838.
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CONTENTS
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<TABLE>
PART I Page Number
-----------
Financial Information
<S> <C>
Item 1. Financial Statements:
Consolidated Unaudited Balance Sheets as of December 31, 1996
and Fiscal Year ended June 30, 1996 3
Consolidated Unaudited Statement of Income for Three Months and Six Months
ending December 31, 1996 and 1995 4
Consolidated Unaudited Statement of Cash Flows for the Six
Months ending December 31, 1996 and 1995 5
Notes to Consolidated Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II Other Information
Item 1. Legal Proceedings
Incorporated by reference to the Company's annual Report on Form 10-KSB/A
for the year ended June 30, 1996
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters of a Vote of the Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27
Financial Data Schedule
b. 1. The Company filed a Current Report on Form 8-K dated December 16, 1996 with
respect to the resignation of Armond J. Schroeder as President and Director
and appointment of Ms Marianne Bedford as Chairperson to the Board.
SIGNATURES 10
</TABLE>
2
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COMPARATOR SYSTEMS CORPORATION
PART 1. FINANCIAL INFORMATION
CONSOLIDATED UNAUDITED BALANCE SHEETS
Item 1. Financial Statements
<TABLE>
<CAPTION>
Six Months Fiscal Year
ended ended
December 31, 1996 June 30, 1996
----------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,573 $ 42,980
Other receivables 25,511 30,675
Prepaid expenses and other current assets 7,066 9,355
----------- -----------
TOTAL CURRENT ASSETS 38,150 83,010
----------- -----------
PROPERTY AND EQUIPMENT:
Machinery and equipment 141,320 141,320
Furniture and fixtures 77,904 77,904
Tooling and molds 74,998 74,998
----------- -----------
Total property and equipment 294,222 294,222
Less accumulated depreciation (230,807) (217,662)
----------- -----------
Property and equipment, net 63,415 76,560
----------- -----------
DEPOSITS 28,747 29,305
-----------
TOTAL ASSETS $ 130,312 $ 188,875
=========== ===========
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Judgments and claims $ 295,036 $ 296,536
Notes payable 687,858 529,422
Accrued salaries and taxes 1,234,006 1,035,782
Accrued expenses 603,861 471,590
Accrued interest 439,198 418,002
Notes payable to related party 412,374 412,374
Accrued expenses due to related party 138,907 113,580
Deferred income 0 23,715
----------- -----------
Total current liabilities 3,811,240 3,301,001
----------- -----------
SHAREHOLDERS' DEFICIT:
Preferred Stock - par value $5.00 per share
50,000,000 shares authorized, none issued
Common stock - par value $0.01 per share,
750,000,000 shares authorized,
614,234,838 shares and 610,334,838 shares
issued and outstanding at December 31, 1996
and June 30, 1996, respectively 6,142,350 6,103,350
Common stock subscribed 65,000 136,578
Additional Paid In Capital 18,680,337 18,582,759
Retained earnings (deficit) (28,568,615) (27,934,813)
----------- -----------
Total shareholders' deficit (3,680,928) (3,112,126)
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 130,312 $ 188,875
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
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COMPARATOR SYSTEMS CORPORATION
CONSOLIDATED UNAUDITED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Six Months
ended December 31, ended December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 147,874 $ 235,450 $ 251,079 $ 235,450
------------ ------------ ------------- -------------
OPERATING EXPENSES:
General and administrative 203,039 247,211 445,567 758,614
Marketing 127,090 306,254 188,703 356,752
Research and development - 39,906 1,500 55,794
Professional fees 129,460 87,046 193,152 88,725
------------ ------------ ------------- -------------
Total operating expenses 459,589 680,417 828,922 1,259,885
------------ ------------ ------------- -------------
LOSS FROM OPERATIONS (311,715) (444,967) (577,843) (1,024,435)
OTHER INCOME (EXPENSE):
Interest expense (28,664) (25,500) (55,959) (51,000)
Other income, net 0 - 0 20,926
------------ ------------ ------------- -------------
Total other expense, net (28,664) (25,500) (55,959) (30,074)
------------ ------------ ------------- -------------
LOSS BEFORE PROVISION FOR INCOME TAXES (340,379) (470,467) (633,802) (1,054,509)
PROVISION FOR INCOME TAXES 0 0 0 0
------------ ------------ ------------- -------------
NET LOSS $ (340,379) $ (470,467) $ (633,802) $ (1,054,509)
============ ============ ============= =============
NET LOSS PER SHARE:
Net loss $ (0.0006) $ (0.0008) $ (0.0010) $ (0.0018)
Weighted average shares outstanding 611,609,965 585,175,064 611,609,965 579,794,555
</TABLE>
See accompanying notes to consolidated financial statements
4
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COMPARATOR SYSTEMS CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
---- ----
<S> <C> <C>
Net loss $ (633,802) $ (1,054,510)
---------- ------------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 13,145 132,218
Provision for doubtful accounts 0 0
Issuance of common stock for services, salaries,
debt, investment 0 503,823
Changes in operating assets and liabilities:
Other receivables 5,164 (89,884)
Prepaid expenses and other assets 2,289 0
Accrued expenses 352,361 266,815
Deferred income 0 0
---------- ------------
Net cash used by operating activities (260,843) (241,538)
---------- ------------
CASH FLOWS USED BY INVESTING ACTIVITIES -
Capital expenditures 0 (58,499)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subscription/issuance of common stock 65,000 317,000
Increase in borrowings 158,436 (44,817)
---------- ------------
Net cash provided by financing activities 223,436 272,183
---------- ------------
NET INCREASE/(DECREASE) IN CASH (37,407) (27,854)
CASH, BEGINNING OF YEAR 42,980 34,871
---------- ------------
CASH, END OF YEAR 5,573 7,017
========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest 1,350 0
Cash paid for taxes 0 0
See accompanying notes to consolidated financial statements
</TABLE>
5
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Notes to Consolidated Unaudited Financial Statements
1. Basis of Presentation
The accompanying consolidated unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation S-
B. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended December 31, 1996 is not
necessarily indicative of the results that may be expected for the year ended
June 30, 1997. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's annual report on Form 10-
KSB/A for the year ended June 30, 1996.
The balance sheet at June 30, 1996 has been derived from the audited financial
statements at that date but does not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements.
2. Income Taxes
The Company has not provided for income taxes as, in the opinion of management,
no taxes are due except for minimal amounts applicable to certain states.
3. Net Loss per Share
Net loss per share is calculated using the weighted average number of shares
issued and outstanding. Common share equivalents and contingent shares issuable
are not considered as their effect is anti dilutive.
6
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COMPARATOR SYSTEMS CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Comparator Systems Corporation (CSC) was founded in 1976, and is one of the
pioneers in the field of Biometrics. The Company's primary business is
fingerprint comparison technology to verify people's identities. CSC is a
publicly-traded company with approximately 13,000 shareholders. Its common stock
was traded on the National Association of Security Dealers Automated Quotation
system (NASDAQ) under the symbol IDID from February 1990 to June 1996, and is
presently informally traded in the Pink Sheets. CSC has two wholly-owned
subsidiaries, International Financial Systems, Inc. (IFS) and Sistemas
Financieros Internacionales (SFI), which compete in the development, marketing,
integration, installation and support of hardware and software operating and
accounting systems for financial institutions such as credit unions.
CSC has since its inception been engaged mainly in biometrics research and
development, with limited revenues produced from sales in the 1980's of its
first-generation fingerprint comparison system, the Comparator Model ID-1. The
Company was unable to produce sufficient revenues from sales of the Model ID-1
to cover its costs and it continues to operate at a loss today. As of December
31, 1996, CSC is still considered a research and development company since it
has as yet generated no revenue from the sale of its current fingerprint
comparison technology. At this time there can be no assurance that the Company
will be able to achieve profitability, or be successful in bringing its current
fingerprint identification products to market, or be able to establish market
acceptance for these products if it is successful in bringing them to market.
The Company presently requires additional financial resources to support its
operations. During the month of October, the Company tried to successfully
implement a payment strategy to secure all its ownership to the present
fingerprint technology. However, under unforeseen circumstances, the promised
funds were not forth coming and therefore final negotiations were never
consummated. The Company still requires funding to proceed with everyday
business operations. The Company has taken several small loans from various
investors bearing interest rates of 5% and future expiration dates. With the
current economic conditions that continually hover over the Company, there can
be no guarantees that the capital required will be achievable.
As of this filing, several employees no longer work for the Company or its
subsidiary. As of December 4, 1996 Armond J. Schroeder resigned his position of
CEO and President of Comparator Systems Corporation, but remained as an officer
and President of IFS. Marianne Bedford assumed the title of Chairwoman to assume
the everyday operations of the parent Company.
On December 6, 1996 Greg Armijo no longer continued as a consultant to the
Company under the SEC settlement agreement. Mr. Robert Reed Rogers as of this
filing remains as a consultant to the Company until his six month term expires
March 18, 1997. His main duties consist of transferring valuable company
information to the newly appointed Chairwoman Marianne Bedford.
7
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The Company's plan of operations for the next three months includes attempting
to rebuild a foundation of financial stability for CSC and its subsidiaries. The
Company's cash resources have been, and are deficient as of the date of filing
of this report. The primary sources of cash during this reporting period
resulted from sales of IFS and SFI application software, from hardware sales,
from support services revenue in the U.S. and Latin America, and from loans to
IFS.
RESULTS OF OPERATION
- --------------------
The three month period ended December 31, 1996 compared to the three month
- --------------------------------------------------------------------------
period ended December 31, 1995
- ------------------------------
Revenues. During the three month period ended December 31, 1996, due to a lack
of working capital, the Company was not active in marketing its new fingerprint
identity verification system, the 5000 Series, which it had introduced to the
market at the CardTech/SecurTech Exhibition in May 1996 in Atlanta, Georgia.
CSC therefore generated no sales revenue from these products. During the same
period in 1995, the Company was still engaged in completing development of the
5000 Series, and thus had not yet generated sales revenues from these products.
The Company's subsidiary IFS is a software developer and systems integrator. The
company has a suite of proprietary software that supports the operation of
credit unions. This software is installed in its present customer base of 18
credit unions in the U.S. and a Spanish version of the software has been
installed in over 30 financial institutions in Latin America by the Company's
subsidiary SFI. In addition to the credit union software, IFS has a suite of
general accounting software that supports the operation of small to medium sized
businesses. This software is character-based and includes all of the accounting
needed to support the operations of companies in the distribution industry. IFS
has a Master Developer's License from State Of The Art, Inc. for a variety of
accounting applications. This software is being used as the basis for
development of new systems in English and Spanish. IFS hopes to increase the
scope of its financial software to include all types of financial institutions
and integrating its current products into the State Of The Art products. For
the three month period ending December 31, 1996, quarterly revenues from
subsidiary operations were $147,874.
Expenses. During the three months ended December 31, 1996 the Company's total
operating expense was $459,589, compared to $680,417 for the same quarter in
1995, a 32.5% decrease. General and administrative expense in the 1996 quarter
decreased by 17.9%; marketing expense decreased by 58.5%; research and
development expense decreased by 100%; professional fees, primarily legal
expense, increased by 48.7%; interest expense increased by 12.4%; and other
income decreased to zero.
After expenses the Company experienced a loss of $311,715 on its subsidiaries'
operations. During the same three month period in 1995, the Company
experienced a similar loss of operations of $444,967. CSC's overall loss before
provision for income taxes for the quarter ended December 31, 1996 was $340,379
compared to $470,467 for the comparable quarter in 1995, a 27.7% decrease.
Liquidity and Capital Resources. The Company's primary sources of cash during
the quarter ended December 31, 1996, were funds generated by the sales of its
wholly-owned subsidiaries IFS and SFI,
8
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amounting to $147,874 and loans to IFS and CSC amounting to $28,000 and common
stock subscribed but not issued in the amount of $65,000. The Company's cash
requirements have been and will continue to be significant.
The future success of the Company, and its survival, hinges on its ability to
raise additional funds. Financial difficulties have not been uncommon in the
history of the Company and there can be no assurance that it will be able to
raise the capital it now needs.
If the Company is successful in obtaining short-term funds, they will be
disbursed to accomplish the following:
. Make final payments to its engineers to assure CSC of clear title to the
Company's new fingerprint comparison technology.
. Make payments to reduce short-term debt.
. Fully cover the Company's normal ongoing operating expenses, and
permit resumption of full-scale operations.
. Fill the immediate clerical and support staffing requirements to
facilitate the conduct of daily business operations.
. Permit the Company to focus on creating a revised Business Plan to
facilitate the Company's plans to raise longer- range financing,
including the Company's strategy to bring its current products to market,
and ongoing future research and development programs to continually
ensure that CSC's technology remains leading-edge.
. Permit implementation of a plan to reach profitability with the
wholly-owned subsidiaries IFS and SFI.
Once short term capital is acquired to stabilize business operation
requirements, management of the Company will then be able to next address an
updated and revised business plan for the next twelve months of operations. It
should be noted that, even with a revised business plan, there can be no
assurance that the Company will be successful in bringing its products to
market, or be successful in developing a market for its products, or be able to
achieve profitability.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COMPARATOR SYSTEMS CORPORATION
Date: February 14, 1997 By: /s/ Celeste Sim
------------------------
Celeste Sim
Corporate Secretary
Date: February 14, 1997 By: /s/ Marianne Bedford
------------------------
Marianne Bedford
Chairman and
Chief Executive Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> DEC-31-1996 JUN-30-1996
<CASH> 5,573 42,980
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 38,150 83,010
<PP&E> 294,222 294,222
<DEPRECIATION> 230,807 217,662
<TOTAL-ASSETS> 130,312 188,875
<CURRENT-LIABILITIES> 3,811,240 3,301,001
<BONDS> 0 0
0 0
0 0
<COMMON> 6,207,350 6,239,928
<OTHER-SE> 18,680,337 18,582,759
<TOTAL-LIABILITY-AND-EQUITY> 130,312 188,875
<SALES> 0 0
<TOTAL-REVENUES> 251,079 357,939
<CGS> 0 0
<TOTAL-COSTS> 828,922 2,352,023
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 55,959 115,421
<INCOME-PRETAX> (633,802) (2,101,513)
<INCOME-TAX> 0 800
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (633,802) (2,102,313)
<EPS-PRIMARY> (0.001) (0.004)
<EPS-DILUTED> 0 0
</TABLE>
