<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 SEPTEMBER 30, 1996
COMMISSION FILE NUMBER: 0-8951
COMPARATOR SYSTEMS CORPORATION
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(Exact name of small business issuer as specified in its business charter)
Colorado 95-3151060
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(State or other jurisdiction of I.R.S. Employer
Incorporation or organization Identification No.
4350 Von Karman, Suite 180, Newport Beach, CA 92660
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(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 No X
--- ---
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: January 23, 1997
The number of shares of Registrant's common stock outstanding as of January 23,
1997 was 614,234,838.
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CONTENTS
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Page Number
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PART I
Financial Information
Item 1. Financial Statements:
Consolidated Unaudited Balance Sheets as of September 30, 1996
and Fiscal Year ended June 30, 1996 3
Consolidated Unaudited Statement of Income for Three Months
ending September 30, 1996 and 1995 4
Consolidated Unaudited Statement of Cash Flows for the Three
Months ending September 30, 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 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
July 5, 1996 with respect to the appointment of
Mr. Armond J Schroeder as President and CEO, the
judgment against Ms. Churchill in the United States
Bankruptcy Court in San Diego, California and the
retirement of Mr. Robert Reed Rogers.
2. The Company filed a Current Report on Form 8-K dated
August 14, 1996 with respect to the resignation and
withdrawal of opinion on the Financial Statements
for the year ended June 30, 1995 of the auditor,
Eli Buchalter Accountancy Corp.
3. The Company filed a Current Report on Form 8-K dated
September 18, 1996 with respect to the settlement of
Civil Action No. 96-3856(JGx)(LGB), with the
Securities and Exchange Commission, the retirement of
Mr. Robert Reed Rogers and resignation of Mr. Gregory
Armijo and the appointment of Ms. Celeste Sim as
Secretary and the appointment of Ms. Marianne
Bedford and Mr. Donald Levering as directors.
SIGNATURES 10
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2
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COMPARATOR SYSTEMS CORPORATION
PART 1. FINANCIAL INFORMATION
CONSOLIDATED UNAUDITED BALANCE SHEETS
Item 1. Financial Statements
<TABLE>
<CAPTION>
Three Months Fiscal Year
ended ended
September 30, 1996 June 30, 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 35,731 $ 42,980
Other receivables 28,175 30,675
Prepaid expenses and other current assets 7,066 9,355
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TOTAL CURRENT ASSETS 70,972 83,010
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PROPERTY AND EQUIPMENT:
Machinery and equipment 141,320 141,320
Furniture and fixtures 77,904 77,904
Tooling and molds 74,998 74,998
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Total property and equipment 294,222 294,222
Less accumulated depreciation (224,235) (217,662)
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Property and equipment, net 69,987 76,560
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DEPOSITS 28,747 29,305
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TOTAL ASSETS $ 169,706 $ 188,875
============ ============
LIABILITIES & SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Judgments and claims $ 296,536 $ 296,536
Notes payable 659,858 529,422
Accrued salaries and taxes 1,132,542 1,035,782
Accrued expenses 523,156 471,590
Accrued interest 419,942 418,002
Notes payable to related party 412,374 412,374
Accrued expenses due to related party 130,847 113,580
Deferred income 0 23,715
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Total current liabilities 3,575,255 3,301,001
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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 September 30, 1996
and June 30, 1996, respectively 6,142,350 6,103,350
Common stock subscribed 136,578
Additional Paid in Capital 18,680,337 18,582,759
Retained earnings (deficit) (28,228,236) (27,934,813)
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Total shareholders' deficit (3,405,549) (3,112,126)
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TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 169,706 $ 188,875
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See accompanying notes to consolidated financial statements
3
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COMPARATOR SYSTEMS CORPORATION
CONSOLIDATED UNAUDITED STATEMENT OF INCOME
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<CAPTION>
Three Months
ended September 30,
1996 1995
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REVENUES $ 103,205 $ 0
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OPERATING EXPENSES:
General and administrative 242,528 511,403
Marketing 61,613 50,498
Research and development 1,500 15,888
Professional fees 63,692 1,679
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Total operating expenses 369,333 579,468
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LOSS FROM OPERATIONS (266,128) (579,468)
OTHER INCOME (EXPENSE):
Interest expense (27,295) (25,500)
Other income, net 0 20,926
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Total other expense, net (27,295) (4,574)
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LOSS BEFORE PROVISION FOR INCOME TAXES (293,423) (584,042)
PROVISION FOR INCOME TAXES 0 0
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NET LOSS $ (293,423) $ (584,042)
============= =============
NET LOSS PER SHARE:
Net loss $ (0.0005) $ (0.0010)
Weighted average shares outstanding 611,609,965 576,014,046
</TABLE>
See accompanying notes to consolidated financial statements
4
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COMPARATOR SYSTEMS CORPORATION
CONSOLIDATED UNAUDITED STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
Three Months
ended September 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (293,423) $ (584,042)
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Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 6,573 65,848
Provision for doubtful accounts 0 0
Issuance of common stock for services,
salaries, debt, investment 0 425,160
Changes in operating assets and liabilities:
Other receivables 2,500 (399)
Prepaid expenses and other assets 2,289 0
Accrued expenses 144,376 (17,254)
Deferred income 0 0
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Net cash used by operating activities (137,685) (110,687)
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CASH FLOWS USED BY INVESTING ACTIVITIES -
Capital expenditures 0 (15,888)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 96,000
Increase in borrowings 130,436
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Net cash provided by financing activities 130,436 96,000
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NET INCREASE/(DECREASE) IN CASH (7,249) (30,575)
CASH, BEGINNING OF YEAR 42,980 34,871
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CASH, END OF YEAR 35,731 4,296
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 1,394 0
Cash paid for taxes 0 0
</TABLE>
See accompanying notes to consolidated financial statements
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 instrucitons 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 September 30, 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 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, employing 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 Intenacionales (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 September
30, 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. Included are completing payment of amounts owed for completion of
development engineering on its new fingerprint identification products, reducing
current debt, covering sales and marketing expenses in connection with
proceeding with the introduction to the market of its latest generation of
fingerprint comparison/verification products, paying salaries to its presently
reduced staff of employees, and permitting re-expansion of staff and facilities
needed to function effectively as a going concern.
On July 5, 1996, Mr. Armond Schroeder, president of CSC's subsidiary IFS, was
appointed to serve as CEO and president of CSC. On September 19, 1996, the
Securities and Exchange Commission (SEC) announced that CSC, Mr. Rogers, CSC's
Chairman, and Mr. Armijo, CSC's Vice President and Corporate Secretary, had
entered into agreements to settle a lawsuit filed against them by the SEC on May
31, 1996, which agreements provided that they would consent to a permanent
injunction without admitting or denying the allegations in the SEC complaint.
The final judgment of permanent injunction and other relief against CSC enjoined
CSC from any acts alleged in the SEC complaint; enjoined CSC from future
violations of Section 17 (a) of the Securities Act of 1933, Section 10 (b) of
the Securities of 1934 (the "'34 Act"), and Rule 10b-5 thereunder, Sections 13
(a) and 13(b) (2)(A) and (B) of the '34 Act and Rules 13 a-1, 13a-13, and 12b-
20; prohibited CSC from transferring any corporate funds or assets to or for the
7
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benefit of Scott Hitt; required CSC to prohibit Mr. Rogers, Mr. Armijo and Mr.
Hitt from acting as officers or directors of CSC; and permitted CSC to retain
Mr. Rogers and Mr. Armijo as consultants to the Company with restrictions on the
length of time and the gross compensation to be paid to them. Mr. Hitt, a former
officer and director of CSC, having lived in Malaysia since 1992, was not
represented in the matter and has reached no settlement agreement with the SEC.
Mr. Rogers retired and Mr. Armijo resigned his position with the Company on
September 19, 1996. Ms. Marianne Bedford and Mr. Donald Levering were appointed
to CSC's board of directors to fill the vacancies created.
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
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The three month period ended September 30, 1996 compared to the three month
- ---------------------------------------------------------------------------
period ended September 30, 1995
- -------------------------------
Revenues. During the three month period ended September 30, 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 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 September 30, 1996, quarterly revenues from
subsidiary operations were $103,205
Expenses. During the three months ended September 30, 1996 the Company's total
operating expense was $369,332, compared to $579,468 for the same quarter in
1995, a 36.3% decrease. General and administrative expense in the 1996 quarter
decreased by 52.6%; marketing expense increased by 22.0%; research and
development expense decreased by 90.6%; professional fees, primarily legal
expense, increased by 3,693.4%; interest expense increased by 7.0%; and other
income decreased to zero.
8
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After expenses the Company experienced a loss of $51,799 on its subsidiaries'
operations. During the same three month period in 1995, the Company had not yet
initiated operations for either of the subsidiaries. CSC's overall loss before
provision for income taxes for the quarter ended September 30, 1996 was $293,422
compared to $584,042 for the comparable quarter in 1995, a 49.8% decrease.
Liquidity and Capital Resources. The Company's primary sources of cash during
the quarter ended September 30, 1996, were funds generated by the sales of its
wholly-owned subsidiaries IFS and SFI, amounting to $103,205, and loans to IFS
amounting to $130,436. 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 to meet these requirements has been obtained, management
of the Company will 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
Dated: January 24, 1997 By: /s/ Celeste Sim
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Celeste Sim
Corporate Secretary
Dated: January 24, 1997 By: /s/ Marianne Bedford
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Marianne Bedford
Chairman and
Chief Executive Officer
10
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<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> SEP-30-1996 JUN-30-1996
<CASH> 35,731 42,980
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 70,972 83,010
<PP&E> 294,222 294,222
<DEPRECIATION> 224,235 217,662
<TOTAL-ASSETS> 169,706 188,875
<CURRENT-LIABILITIES> 3,573,478 3,301,001
<BONDS> 0 0
0 0
0 0
<COMMON> 6,141,098 6,239,928
<OTHER-SE> 18,675,009 18,582,759
<TOTAL-LIABILITY-AND-EQUITY> 169,706 188,875
<SALES> 0 0
<TOTAL-REVENUES> 103,205 357,939
<CGS> 0 0
<TOTAL-COSTS> 369,332 2,352,023
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27,295 115,421
<INCOME-PRETAX> (293,422) (2,101,513)
<INCOME-TAX> 0 800
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (293,422) (2,102,313)
<EPS-PRIMARY> (0.001) (0.004)
<EPS-DILUTED> 0 0
</TABLE>
