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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission File Number 0-9940
FINGERMATRIX, INC.
New York 13-2854686
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
145 Palisade Street, Dobbs Ferry, New York 10522-1617
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (914) 693-1050
None
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changes since
last report)
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 and Exchange Act
of 1934 during the preceding twelve 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 31, 1995
Common stock $.01 par value 4,769,830
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying financial statements and information are submitted as
required by Form 10-Q. The financial information does not include all
disclosures that are required by generally accepted accounting principles.
In the opinion of management, all adjustments that are necessary to present
fairly, the financial position of Fingermatrix, Inc. ("the Company") for the
period included, have been made.
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PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS December 31, September 30,
1995 1995
---- ----
Current assets:
Cash $ 406,126 $ 1,067,577
Prepaid expenses 26,998 20,855
Restricted cash - 31,825
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Total current assets 433,124 1,120,257
Property and equipment, net of
accumulated depreciation of $37,404;
$32,715 at September 30, 1995 38,359 12,810
Patents, net of accumulated amortization
of $98,261; $94,961 at September 30,
1995 126,124 129,424
Security deposits 12,805 12,805
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$ 610,412 $ 1,275,296
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LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable - trade $ 14,879 $ 34,965
Accrued expenses 359,812 977,677
Note payable 250,000 250,000
Current portion of long-term debt 575,623 628,003
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Total current liabilities 1,200,314 1,890,645
Long-term debt, less current portion 217,000 540,659
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Total liabilities 1,417,314 2,431,304
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Shareholders' deficiency:
Common stock, $.01 par value:
Authorized, 20,000,000 shares;
issued and outstanding 4,769,830
shares; 3,945,404 shares at
September 30, 1995 47,699 39,454
Additional paid-in capital 57,213,751 56,412,163
Deficit (58,068,352) (57,607,625)
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Total shareholders' deficiency (806,902) (1,156,008)
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Total liabilities and shareholders'
deficiency $ 610,412 $ 1,275,296
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See notes to financial statements.
1
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PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
Three months
ended
December 31,
-----------------
1995 1994
---- ----
Revenues:
Net sales $ - $ -
Interest income 3,118 736
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3,118 736
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Expenses:
Operating costs 241,557 133,544
General and administrative 199,509 272,696
Interest 22,779 29,516
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463,845 435,756
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Net loss $ (460,727) $ (435,020)
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(Loss) per share $ (.11) $ (.35)(1)
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Weighted average number of shares 4,126,947 1,227,282(1)
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(1) Adjusted to reflect reverse .07 for 1 stock split effected in
April, 1995.
See notes to financial statements.
2
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PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY IN ASSETS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
AdditionaL Development
Common Stock Paid-In Stage
Share Amount Capital Deficit Total
--------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 3,945,404 $ 39,454 $56,412,163 $(57,607,625) $(1,156,008)
Warrants exercised 804,926 8,050 757,908 - 765,958
Common stock issued in lieu
of bonuses to employees 19,500 195 43,680 - 43,875
Net loss for the three
months ended
December 31, 1995 - - - (460,727) (460,727)
--------- -------- ----------- ------------ -----------
Balance, December 31,
1995 4,769,830 $ 47,699 $57,213,751 $(58,068,352) $ (806,902)
--------- -------- ----------- ------------ -----------
--------- -------- ----------- ------------ -----------
</TABLE>
See notes to financial statements.
3
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PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Three months
ended
December 31,
1995 1994
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Cash flows from operating activities:
Net loss $ (460,727) $(435,020)
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Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 4,691 2,212
Amortization 3,300 3,300
Increase (decrease) in cash flows from
changes in operating assets and
liabilities:
Prepaid expenses (6,144) (876)
Accounts payable (20,086) -
Accrued expenses (563,274) 167,076
Accrued payroll and taxes (10,716) -
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Net cash used in operating activities (1,052,956) (263,308)
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Cash flows from investing activities:
Acquisition of property and equipment (30,238) (2,366)
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Cash flows from financing activities:
Proceeds from issuance of common stock 765,958 -
Repayment of notes payable (200,000) -
Repayment of long-term debt (176,040) -
Proceeds from issuance of notes - 575,955
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Net cash provided by financing activities 389,918 575,955
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Net increase (decrease) in cash (693,276) 310,281
Cash, beginning of period 1,099,402 13,567
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Cash, end of period $ 406,126 $ 323,848
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Supplemental disclosures:
Increase in stockholders' equity
resulting from issuance of stock
in lieu of bonuses $ 43,875 $ -
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See notes to financial statements.
4
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FINGERMATRIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and the applicable rules of
the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes 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, 1995 are not necessarily indicative of the
results that may be expected for the year ending September 30, 1996. For
further information, refer to the financial statements and footnotes for the
years ended September 30, 1995, 1994, 1993 and May 31, 1993.
Business operations
The Company has been in the development stage and, accordingly, has directed
its efforts and resources to product and prototype development and production
planning of its electronic fingerprint identification systems. The Company
operated as a debtor in possession pursuant to Chapter 11 of the Federal
Bankruptcy Code until September, 1994, at which date a Trustee was appointed.
On March 31, 1995, a Plan of Reorganization was confirmed and, accordingly, the
Company exited from protection of the Bankruptcy Court and the Company's
Management was transferred to a Board of Directors.
2. Stock Warrants
In addition to the common shares issued pursuant to the terms of the
reorganization plan, the Company issued three classes of common stock warrants,
Series A, B and C. The number of warrants issued for the preceding three
months is detailed in the chart below.
5
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FINGERMATRIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995
2. Stock Warrants (continued)
Summary of warrants exercised and outstanding:
Number of Number of
Warrants Warrants
Outstanding Outstanding Total
at at Exercise Potential
September 30, Warrants December 31, Price Conversion
Class 1995 Exercised 1995 Per Share Amounts
----- -------------- --------- ---- --------- -------
A Warrants 2,996,625 664,229 2,332,396 $1.00 $2,332,396(a)
B Warrants 222,041 15,697 206,344 $2.00 $ 412,688
C Warrants 300,000 125,000 175,000 $ .01 $ 1,750
Additional
Warrants 200,000 - 200,000 $ .01 $ 2,000
(a) Warrants expire January 18, 1996.
Class A warrants entitle the holder thereof to purchase for $1.00 one share
of common stock in exchange for one warrant. Exercising party shall also
receive one-half of one B Warrant.
Class B warrants entitle the holder thereof to purchase for $2.00 one share
of common stock in exchange for one warrant.
Class C and additional Warrants entitle the holder thereof to purchase for
$.01 one share of common stock in exchange for one warrant.
Between October 1, 1995 and December 31, 1995, warrants were exercised
generating $765,958 and resulting in the issuance of 804,926 common shares.
6
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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
condensed Financial Statements of the Company and notes thereto annexed hereto.
Liquidity and Capital Resources
After nearly twenty years of operation and a bankruptcy reorganization, the
Company is still a development stage company and it still has not yet achieved
a sufficient volume of sales to cover the large expenditures required for
product development, production engineering, tooling, equipment, and promotion
and sale of its products. As a consequence, the Company has continuously
operated at a loss from its inception to the present. It has been and is
currently dependent on the sale of its securities to fund its operations.
By filing for relief under the Bankruptcy Law, the Company expected to shed
itself of a substantial portion of the burden of its prior capitalization and,
to a lesser extent, of its general unsecured debt, so as to be able to finance
further development and marketing of its fingerprint identification technology,
which appeared to be much more advanced in many areas than the technology being
used by others.
During the quarter ended December 31, 1995, the Company received $766,000
from the conversion of its warrants issued under the Bankruptcy Plan.
Notwithstanding that the Company had as of December 31, 1995 cash in the sum
of $406,000, the Company had on that date a working capital deficiency of
$767,000, which deficiency was due to the portion of the Bankruptcy Obligations
payable within one year. The monthly costs of the Company for the quarter
ended December 31, 1995 averaged $155,000. As of April 30, 1996, the Company
had $804,000 in cash in banks or in cash equivalents. Based upon continuation
of such monthly operating costs, the Company has sufficient capital to continue
for at least seven months from April 30, 1996 assuming that it has no revenues
from sales of its products and services and that it does not raise additional
capital through the sale of its securities. While the Company is expecting
orders for its Single Print Scanner, at this time, however, it does not have
any orders, nor can it represent that it will obtain orders.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
The monthly operating costs do not take into account the remaining payments
which the Company has to make on the bankruptcy obligations. The remaining
payments owed on the bankruptcy obligations are the sum of $417,000 to SIS,
with $200,000 due October 19, 1996 and $217,000 due April 19, 1997; the sum of
$87,915 to the general unsecured creditors due October 19, 1996. The Company
has paid on the bankruptcy obligations through April 30, 1996 a total of
$1,766,694, all of its financed from funds raised from the equity lenders and
the private placement.
In order to finance funding for operations of the Company as well as to pay
for the bankruptcy obligations, the Company may seek such funding through sales
of its securities in private placements exempt from registration under the
Securities Act. Also refer to footnote 2 to the Condensed Financial
Statements, that discusses the outstanding warrants available for conversion at
December 31, 1995.
Results of Operations
During the three months ended December 31, 1995 and 1994, the Company had no
revenues from sales or service. During the same period, operating costs
increased $108,000, or 81%, as compared to the corresponding prior year period.
This is primarily attributable to the Company's increased focus on product
development and production of its initial products. The main components of
operating expenses are payroll and related employment costs, outside consulting
development costs, and research and development costs. Said costs aggregated
$186,000 for the 1995 period, as compared with $129,600 for 1994.
General and administrative expenses decreased $73,000 in the 1995 quarter,
as compared to 1994, or 27%. The 1994 period included bankruptcy related
professional fees aggregating approximately $138,000, as compared with $68,000
for the 1995 period. The other components of general and administrative
expenses remained relatively constant, as compared with the prior year.
Interest expense decreased from $29,500 in 1994 to $22,800, or 23%, in 1995.
This is the result of the debt repayments made once the Company emerged from
bankruptcy in April, 1995.
8
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Form 8-K date July 10, 1996 filed by the Registrant contemporaneously
herewith, which reports upon a proceeding instituted by former Chairman and
Chief Executive Officer of Registrant, Michael Schiller to remove the legend
placed on his share certificate for 200,000 shares of Registrant's common stock
issued to Mr. Schiller upon his exercise of warrants granted to him. Said Form
8-K is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits.
(b) Reports on Form 8-K. Contemporaneously with the filing of
this report, there was filed with the Commission a Form 8-K
dated July 10, 1996. Said report, however, does not deal with
the quarter reported upon, and is only filed for informational
purposes. No other reports were filed in this quarter.
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.
FINGERMATRIX, INC.
(Registrant)
Dated July 10, 1996 By
Thomas T. Harding, President
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