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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 March 31, 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 March 31, 1996
Common stock $.01 par value 6,522,020
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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
March 31, September 30,
1996 1995
----------- -----------
Current assets:
Cash $ 1,367,433 $ 1,067,577
Prepaid expenses 27,627 20,855
Other current assets 7,130 -
Restricted cash - 31,825
----------- -----------
Total current assets 1,402,190 1,120,257
Property and equipment, net of
accumulated depreciation of $44,880;
$32,715 at September 30, 1995 84,203 12,810
Patents, net of accumulated amortization
of $101,561; $94,961 at September 30,
1995 122,824 129,424
Security deposits 12,805 12,805
----------- -----------
$ 1,622,022 $ 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)
March 31, September 30,
1996 1995
----------- -----------
Current liabilities:
Accounts payable - trade $ 33,081 $ 34,965
Accrued expenses 120,159 977,677
Note payable 250,000 250,000
Current portion of long-term debt 575,623 628,003
----------- -----------
Total current liabilities 978,863 1,890,645
Notes payable, less current
maturities 217,000 540,659
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Total liabilities 1,195,863 2,431,304
----------- -----------
Shareholders' equity (deficiency):
Common stock 65,221 39,454
Additional paid-in capital 59,019,390 56,412,163
Development stage deficit (58,658,452) (57,607,625)
----------- -----------
Total shareholders' equity (deficiency) 426,159 (1,156,008)
----------- -----------
Total liabilities and shareholders'
equity (deficiency) $ 1,622,022 $ 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 Six months ended
March 31, March 31,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Net sales $ - $ - $ - $ -
Interest income 8,933 799 12,051 1,535
--------- --------- ----------- ---------
8,933 799 12,051 1,535
--------- --------- ----------- ---------
Expenses:
Operating costs 238,624 108,035 429,511 230,392
General and administrative 330,573 283,845 589,122 567,728
Interest 21,466 35,908 44,245 65,424
590,663 427,788 1,062,878 863,544
--------- --------- ----------- ---------
Net loss $(581,730) $(426,989) $(1,050,827) $(862,009)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Loss per share $ (.10) $ (.35) $ (.20) $ (.70)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Weighted average number of
shares outstanding 6,055,961 1,227,282(1) 5,091,454 1,227,282(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 SIX MONTHS ENDED MARCH 31, 1996
<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 2,442,116 24,422 2,305,947 - 2,330,369
Common stock issued in lieu
of bonuses to employees 134,500 1,345 301,280 - 302,625
Net loss for the six
months ended
March 31, 1996 - - - (1,050,827) (1,050,827)
--------- --------- ----------- ------------ -----------
Balance, March 31, 1996 6,522,020 $ 65,221 $59,019,390 $(58,658,452) $ 426,159
--------- --------- ----------- ------------ -----------
</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
six months six months
ended ended
March 31, March 31,
1996 1995
----------- ---------
Cash flows from operating activities:
Net loss $(1,050,827) $(862,009)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 12,165 4,506
Amortization 6,600 6,600
Increase (decrease) in cash flows
from changes in operating assets
and liabilities:
Prepaid expenses (6,771) (2,578)
Accounts payable (1,884) 29,851
Accrued expenses (559,273) 320,559
Accrued payroll and taxes 3,249 -
Other current assets (6,000) 1,900
----------- ---------
Net cash used in operating activities (1,602,741) (501,171)
----------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (83,557) (9,078)
----------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,330,369 -
Repayment of notes payable (200,000) -
Payment of current portion of
long-term debt (176,040) -
Proceeds from issuance of notes - 575,955
----------- ---------
Net cash provided by financing
activities 1,954,329 575,955
----------- ---------
Net increase in cash 268,031 65,706
Cash, beginning of period 1,099,402 13,567
----------- ---------
Cash, end of period $ 1,367,433 $ 79,273
----------- ---------
----------- ---------
Supplemental disclosures:
Increase in stockholders' equity
resulting from issuance of stock
in lieu of bonuses $ 302,625 $ -
----------- ---------
----------- ---------
See notes to financial statements.
5
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FINGERMATRIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 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 six
month period ended March 31, 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 exercised for the preceding six
months is detailed in the chart below.
6
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FINGERMATRIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1996
2. Stock Warrants (continued)
Summary of warrants exercised and outstanding:
Number of Number of
Warrants Warrants Total
Outstanding at Outstanding at Exercise Potential
September 30, Warrants March 31, Price Conversion
Class 1995 Exercised 1996 Per Share Amounts
----- -------------- --------- ------------- --------- ----------
A Warrants 2,996,625 2,224,948 - (a) $ - (a) $ (a)
B Warrants 222,041 17,168 204,873 $ 2.00 $ 409,746
C Warrants 300,000 200,000 100,000 $ .01 $ 1,000
Additional
Warrants 200,000 - 200,000 $ .01 $ 2,000
(a) Warrants expired 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 March 31, 1996, warrants were exercised
generating $2,330,369 and resulting in the issuance of 2,442,116 common shares.
7
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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 six months ended March 31, 1996, the Company received $2,330,000
from the conversion of its warrants issued under the Bankruptcy Plan.
The Company had as of March 31, 1996 cash in the sum of $1,367,000 and
working capital of $423,300. 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 six months ended
March 31, 1996 averaged $177,000. Based upon continuation of such monthly
operating costs, the Company has sufficient capital to continue for
approximately seven months from March 31, 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.
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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 it financed from funds raised from equity lenders and
private placement. In addition, in May, 1996, the holder of a $250,000 note
agreed to convert the entire principal amount into 250,000 shares of common
stock.
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
March 31, 1996.
Results of Operations
During the six months and three months ended March 31, 1996 and 1995, the
Company had no revenues from sales or service. During the same period,
operating costs increased $199,000 and $130,000, or 86% and 120%, 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 development costs,
and research and development costs. Said costs aggregated $417,500 for the six
months ended March 31, 1996, as compared with $226,000 for 1995. For the
respective three month periods, the amounts were $238,600 and $108,000.
General and administrative expenses increased 4% or $21,000 in six months
ended March 31, 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 $300,000, as compared to $160,000 in 1996. Offsetting this
$140,000 decrease in expenses were increases aggregating $161,000 for
insurance, stockholder mailing and correspondence, telephone and other office
expenses.
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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 July 10, 1996 By THOMAS T. HARDING
____________________________
Thomas T. Harding, President
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