<PAGE>
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 June 30, 1996
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.
(Exact name of registrant as specified in its charter)
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 June 30, 1996
Common stock $.01 par value 7,181,780
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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
June 30, September 30,
1996 1995
---- ----
Current assets:
Cash $ 632,872 $ 1,067,577
Inventories 95,000 -
Prepaid expenses 36,329 20,855
Other current assets 15,275 -
Restricted cash - 31,825
----------- -----------
Total current assets 779,476 1,120,257
Property and equipment, net of
accumulated depreciation of $56,780;
$32,715 at September 30, 1995 152,157 12,810
Patents, net of accumulated amortization
of $104,860; $94,961 at September 30,
1995 118,612 129,424
Security deposits 12,805 12,805
----------- -----------
$ 1,063,050 $ 1,275,296
----------- -----------
----------- -----------
See notes to financial statements.
1
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PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
June 30, September 30,
1996 1995
---- ----
Current liabilities:
Accounts payable - trade $ 79,347 $ 34,965
Accrued expenses 26,895 977,677
Note payable - 250,000
Current portion of long-term debt 504,784 628,003
----------- -----------
Total current liabilities 611,026 1,890,645
Notes payable, less current
maturities - 540,659
----------- -----------
Total liabilities 611,026 2,431,304
----------- -----------
Shareholders' equity (deficiency):
Common stock 71,818 39,454
Additional paid-in capital 59,657,124 56,412,163
Development stage deficit (59,276,918) (57,607,625)
----------- -----------
Total shareholders' equity (deficiency) 452,024 (1,156,008)
----------- -----------
Total liabilities and shareholders'
equity (deficiency) $ 1,063,050 $ 1,275,296
----------- -----------
----------- -----------
See notes to financial statements.
2
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PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
June 30, June 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Net sales $ - $ - $ - $ -
Interest income 8,282 366 20,333 1,901
--------- ---------- ----------- ---------
8,282 366 20,333 1,901
--------- ---------- ----------- ---------
Expenses:
Operating costs 329,894 129,136 795,923 379,275
General and administrative 287,958 197,491 840,562 745,472
Interest 8,896 22,862 53,141 65,424
--------- ---------- ----------- ---------
626,748 349,489 1,689,626 1,190,171
--------- ---------- ----------- ---------
Loss before extraordinary
gain (618,466) (349,123) (1,669,293) (1,188,270)
Extraordinary credit - gain
on debt restructuring - 1,781,128 - 1,781,128
--------- ---------- ----------- ---------
Net income (loss) $(618,466) $1,432,005 $(1,669,293) $ 592,858
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Earnings (loss) per share
before extraordinary
credit $ (.09) $ (.11) $ (.30) $ (.64)
Extraordinary credit - .57 - .96
--------- ---------- ----------- ---------
Net earnings (loss)
per common share $ (.09) $ .46 $ (.30) $ .32
--------- ---------- ----------- ---------
--------- ---------- ----------- ---------
Weighted average number of
shares outstanding 6,701,770 3,099,859(1) 5,607,922 1,853,279(1)
--------- --------- ----------- ---------
(1) Adjusted to reflect reverse .07 for 1 stock split effected in April, 1995.
See notes to financial statements.
3
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PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock AdditionaL Development
-------------------- 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 2,751,876 27,519 2,597,181 - 2,624,700
Common stock issued in lieu
of bonuses to employees 134,500 1,345 301,280 - 302,625
Note payable converted to
common stock 250,000 2,500 247,500 - 250,000
Shares issued pursuant to
private placement 100,000 1,000 99,000 - 100,000
Net loss for the nine
months ended
June 30, 1996 - - - (1,669,293) (1,669,293)
--------- -------- ----------- ------------ -----------
Balance, June 30, 1996 7,181,780 $ 71,818 $59,657,124 $(59,276,918) $ 452,024
--------- -------- ----------- ------------ -----------
--------- -------- ----------- ------------ -----------
</TABLE>
See notes to financial statements.
4
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PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the For the
nine months nine months
ended ended
June 30, June 30,
1996 1995
----------- -----------
Cash flows from operating activities:
Loss before extraordinary credit $(1,669,293) $(1,188,270)
Extraordinary credit - 1,781,128
----------- -----------
Net income (loss) (1,669,293) 592,858
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 24,976 7,000
Amortization 9,900 9,900
Extraordinary gain - (1,781,128)
Increase (decrease) in cash flows
from changes in operating assets
and liabilities:
Inventories (95,000) -
Prepaid expenses (15,474) 4,925
Accounts payable 44,382 (7,708)
Accrued expenses (648,156) 636,419
Other current assets (15,275) 1,900
----------- -----------
Net cash used in operating activities (2,363,940) (535,834)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (163,412) (9,078)
----------- -----------
Cash flows from financing activities:
Payment to restricted cash account - (25,529)
Proceeds from issuance of common stock 2,724,700 779,100
Repayment of notes payable (400,000) (250,000)
Payment of current portion of
long-term debt (263,878) -
Proceeds from issuance of notes - 575,955
Payments from employee - 17,225
Payments to creditors as part of
debt restructuring - (446,124)
----------- -----------
Net cash provided by financing
activities 2,060,822 650,627
----------- -----------
Net (decrease) increase in cash (466,530) 105,715
Cash, beginning of period 1,099,402 13,567
----------- -----------
Cash, end of period $ 632,872 $ 119,282
----------- -----------
----------- -----------
See notes to financial statements.
5
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PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Continued)
For the For the
nine months nine months
ended ended
June 30, June 30,
1996 1995
----------- -----------
Supplemental disclosures:
Increase in stockholders' equity:
Issuance of stock in lieu of bonuses $ 302,625
Conversion of note payable 250,000
-----------
$ 552,625
-----------
-----------
See notes to financial statements.
6
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FINGERMATRIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996
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 nine
month period ended June 30, 1996 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 exercisable at June 30, 1996 is
detailed in the chart below.
7
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FINGERMATRIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996
2. Stock Warrants (continued)
Number of
Warrants Total
Outstanding at Exercise Potential
June 30, Price Conversion
Class 1996 Per Share Amounts
-------------- --------- ----------
B Warrants 1,306,433 $ 2.00 $2,612,866
C Warrants 100,000 $ .01 $ 1,000
Additional Warrants 200,000 $ .01 $ 2,000
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 June 30, 1996, warrants were exercised
generating $2,624,700 and resulting in the issuance of 2,751,876 common
shares.
8
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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 nine months ended June 30, 1996, the Company received $2,624,700
from the conversion of its warrants issued under the Bankruptcy Plan.
The Company had as of June 30, 1996 cash in the sum of $632,800 and working
capital of $168,450. On May 23, 1996, a $250,000 note payable was converted
into 250,000 shares of common stock, thereby increasing working capital
accordingly. The monthly costs of the Company for the nine months ended June
30, 1996 averaged $188,000. Based upon continuation of such monthly operating
costs, the Company has sufficient capital to continue for approximately four
months from June 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. However, pursuant to a private placement
agreement, the Company is scheduled to receive eight monthly $100,000
installments, through February, 1997. Additionally, the Company is
anticipating that a substantial portion of the outstanding B warrants will be
exercised through January, 1997.
9
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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
$87,784 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 it financed from funds raised from equity lenders and
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
June 30, 1996.
Results of Operations
During the nine months and three months ended June 30, 1996 and 1995, the
Company had no revenues from sales or service. During the same period,
operating costs increased $416,000 and $201,000, or 110% and 155%,
respectively, as compared to the corresponding prior year period. This is
directly 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 and
development costs, and research and development costs. Said costs aggregated
$775,000 for the nine months ended June 30, 1996, as compared with $372,000 for
1995. For the respective three month periods, the amounts were $323,000 and
$126,000.
General and administrative expenses increased 13% or $95,000 in nine months
ended June 30, 1996, as compared to 1995. This is the result of the change in
the Company's focus in 1996, as compared to 1995. In 1995, the Company was
still operating as a debtor-in-possession, and, accordingly, was attempting to
finalize its Plan of Reorganization. In 1996, the main activity was to return
to development and attempting to market the Company's products. In 1995,
bankruptcy and other professional fees included in general and administrative
expenses totalled $361,000, as compared to $250,000 in 1996. Offsetting this
$111,000 decrease in expenses were increases aggregating $206,000 for
insurance, stockholder mailing and correspondence, telephone and other office
expenses.
Interest expense is decreasing as the Company liquidates its interest
bearing obligations.
10
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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 August 15, 1996 By ________________________________
Thomas T. Harding, President
