<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, 1997
--------------
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, 1997
- --------------------------- -----------------------------
Common stock $.01 par value 9,428,393
<PAGE>
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.
<PAGE>
PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
June 30, September 30,
---------- -------------
1997 1996
---------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $105,059 $404,986
Inventories 147,458 78,870
Prepaid expenses and
other current assets 36,327 156,842
-------- --------
Total current assets 288,844 640,698
-------- --------
Property and equipment, net of
accumulated depreciation of
$80,086; $64,600 at
September 30, 1996 132,536 174,308
-------- --------
Patents, net of accumulated
amortization of $118,836;
$108,180 at September 30, 1996 122,697 133,353
Deferred charges 16,841 -
Deposits 12,805 13,605
-------- --------
152,343 146,958
-------- --------
Total assets $573,723 $961,964
======== ========
</TABLE>
See notes to financial statements.
1
<PAGE>
PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
----------- -------------
1997 1996
----------- -------------
<S> <C> <C>
Liabilities:
Accounts payable - trade $ 134,483 $ 1,291
Accrued expenses 65,057 126,459
Shareholder loan payable 100,000 --
Current portion of long-term debt 117,000 504,839
----------- -----------
Total current liabilities 416,540 632,589
----------- -----------
Shareholders' equity:
Common stock - $.01 par value:
20,000,000 shares authorized;
9,428,393 and 8,206,150 shares
issued and outstanding 94,285 82,062
Additional paid in capital 61,990,844 60,452,875
Deficit accumulated during
the development stage (61,927,946) (60,205,562)
----------- -----------
Stockholders' equity 157,183 329,375
----------- -----------
Total liabilities and
stockholders' equity $ 573,723 $ 961,964
=========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE>
PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
--------------------------------- -------------------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 8,845 $ - $ 12,320 $ -
Interest income 940 8,282 4,140 20,333
--------- --------- ---------- ----------
9,785 8,282 16,460 20,333
--------- --------- ---------- ----------
Expenses:
Operating costs 282,357 329,894 833,078 795,923
General and administrative 302,103 287,958 893,253 840,562
Interest 3,247 8,896 12,513 53,141
--------- --------- ---------- ----------
587,707 626,748 1,738,844 1,689,626
--------- --------- ---------- ----------
Net loss $(577,922) $ (618,466) $(1,722,384) $(1,669,293)
========= ========== =========== ===========
Net loss per common share $ (.06) $ (.09) $ (.19) $ (.30)
========= ========== =========== ============
Weighted average number of
shares outstanding 9,295,903 6,701,770 8,957,574 5,607,922
========= ========== =========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional Development
---------------------------- Paid-In Stage
Share Amount Capital Deficit Total
--------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, September 30,
1996 8,206,150 $ 82,062 $60,452,875 $(60,205,562) $ 329,375
Warrants exercised 175,486 1,755 347,716 - 349,471
Shares issued pursuant
to private placement 500,000 5,000 495,000 - 500,000
Shares issued pursuant
to Regulation S offering 361,275 3,613 465,587 - 469,200
Shares issued pursuant
to Regulation D offering 185,482 1,855 229,666 - 231,521
Net loss for the nine
months ended
June 30, 1997 - - - (1,722,384) (1,722,384)
--------- -------- ----------- ------------ -----------
Balance, June 30,
1997 9,428,393 $ 94,285 $61,990,844 $(61,927,946) $ 157,183
========= ======== =========== ============ =========
</TABLE>
See notes to financial statements.
4
<PAGE>
PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,722,384) $(1,669,293)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 45,266 24,976
Amortization 10,656 9,900
Increase (decrease) in cash flows from changes in operating assets and
liabilities:
Prepaid expenses 120,515 (15,474)
Inventories (68,588) (95,000)
Deposits 800 -
Accounts payable 133,192 44,832
Accrued expenses (149,239) (648,156)
Deferred charges (16,841) -
Other current assets - (15,275)
---------- ----------
Net cash used in operating activities (1,646,623) (2,363,940)
---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (3,496) (163,412)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,318,671 2,724,700
Repayment of notes payable (300,000) (400,000)
Proceeds from shareholder loan 100,000 -
Proceeds from Regulation D offering 231,521 -
Payment of current portion
of long-term debt - (263,878)
--------- ----------
Net cash provided by financing activities 1,350,192 2,060,822
--------- ---------
Net decrease in cash (299,927) (466,530)
Cash, beginning of period 404,986 1,099,402
--------- ----------
Cash, end of period $ 105,059 $ 632,872
========= ==========
</TABLE>
See notes to financial statements.
5
<PAGE>
PART I - FINANCIAL STATEMENTS
FINGERMATRIX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(Continued)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Supplemental disclosures:
Increase in stockholders' equity:
Issuance of stock in lieu of bonuses $ - $ 302,625
Conversion of note payable - 250,000
--------- ---------
$ - $ 552,625
========= =========
</TABLE>
See notes to financial statements.
6
<PAGE>
FINGERMATRIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1997
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, 1997 are not necessarily
indicative of the results that may be expected for the year ending September
30, 1997. For further information, refer to the financial statements and
footnotes for the years ended September 30, 1996, 1995, and 1994.
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
nine months is detailed in the chart below.
7
<PAGE>
FINGERMATRIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1997
2. STOCK WARRANTS (continued)
Summary of warrants exercised and outstanding:
<TABLE>
<CAPTION>
Number of Number of
Warrants Warrants
Outstanding Outstanding Total
at at Exercise Potential
September 30, Warrants June 30, Price Conversion
Class 1996 Exercised 1997 Per Share Amounts
----- ------------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
B Warrants 1,245,681 175,486 - - -
C Warrants 100,000 - 100,000 $ .01 $ 1,000
Special A
Warrants 285,000 - 285,000 $1.00 $285,000
Special B
Warrants 205,000 - 205,000 $2.00 $410,000
</TABLE>
Class B warrants entitle the holder thereof to purchase for $2.00 one
share of common stock in exchange for one warrant. These warrants expired
January 15, 1997.
Class C and additional Warrants entitle the holder thereof to purchase
for $.01 one share of common stock in exchange for one warrant.
Special Class A warrants entitle the holder thereof to purchase for
$1.00 one share of common stock in exchange for one warrant. These
warrants will expire July, 2000.
Special Class B warrants entitle the holder thereof to purchase for
$2.00 one share of common stock in exchange for one warrant. These
warrants will expire July, 2001.
Between October 1, 1996 and June 30, 1997, 175,486 warrants were
exercised generating $349,471 and resulting in the issuance of 175,486 common
shares. Class A Warrants expired January 15, 1996.
8
<PAGE>
FINGERMATRIX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1997
3. STOCK OPTIONS
In addition to the warrants, there are 2 stock option plans. Details
are listed below:
A) 296,500 shares are reserved for the issuance upon the exercise of
options granted under the Company's Employee Incentive Stock Option Plan with
varying exercise prices from $1.75 to $2.375 expiring July 21, 2005.
B) 300,000 shares reserved for the issuance upon the exercise of
options granted under the Company's Directors' Stock Option Plan at an
exercise price of $2.375 expiring July 21, 2005.
4. FINANCING TRANSACTIONS
During the quarter ended June 30, 1997 the Company completed a
Regulation D offering that raised a net of $231,521, through the sale of
185,482 common shares.
Additionally, a 10% subordinated convertible note in the amount of
$100,000 was executed by the Company with a stockholder. Said note is due in
full on May 31, 1998, with interest compounded quarterly. The holder of the
note has the right to convert the principal, or any portion thereof, into
common shares of the Company at any time on or before May 31, 1998 at the rate
of $.70 per share, for a total of 147,875.14 shares.
9
<PAGE>
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
Although the Company has started to receive small but firm orders for its
products, and has indications that it will be receiving significant orders
within the next several months, the Company, after twenty years of operation
and a bankruptcy reorganization, 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. As of date hereof, the Company has nearly exhausted its working
capital, and, as indicated below, if additional capital is not raised by the
end of August, 1997, the Company may not be able to continue its day-to-day
operations.
The following capital investments and loans aggregating $1,690,971, less
$40,800 in commissions, and less $300,000 in repayment of bankruptcy mandated
loan obligations, were made to the Company during the nine months ended June
30, 1997 which has enabled the Company to sustain itself:
1. In the nine months ended June 30, 1997, an aggregate of $175,486
shares of the Company's common stock were issued pursuant to the exercise of
like number of warrants having exercise prices of $2.00 per share for an
aggregate price to the Company of $349,471.
2. In the months of October, 1996 and through December, 1996, pursuant to
a subscription agreement made in August, 1995, the Company sold 500,000 shares
of its common stock under Regulation S at a price of $1.00 per share for an
aggregate price of $500,000.
3. In the months of January and February, 1997, the Company sold a total
of 361,255 shares of its common stock under Regulation S for an aggregate gross
price of $510,000; of the total of 361,255 shares of common stock, 313,720
shares were sold at a price of $1.434 per share, and the balance of 47,555
shares were sold at a price of $1.2617 per share; a commission of 8%, amounting
to $40,800 was paid by the Company on these sales.
10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
4. In June, 1997, the Company sold 185,482 shares in an offering to
"accredited investors" pursuant to Regulation D at varying prices which
averaged to $1.50 per share with Company receiving $231,500.
5. The Sum of $100,000 was loaned to the Company by one of the Company's
largest investors in the last days of May, 1997, and is evidenced by a
convertible subordinated note bearing interest at 10% per annum dated June 1,
1997 and payable May 31, 1998; at the option of the holder of the June 1, 1997
and payable May 31, 1998; at the option of the holder of the note, each $.70 of
principal owed on the note is convertible into one share of the Company's
common stock. In July, 1997, the same lender loaned the Company
an additional $100,000 evidenced by a convertible subordinated note dated July
1, 1997 having the same terms as the first note and due June 30, 1998.
The Company had as of June 30, 1997 cash in the sum of $105,000 and
working capital deficiency of $127,000. The monthly costs of the Company for
the nine months ended June 30, 1997 averaged $190,000. Based upon continuation
of such monthly operating costs, the Company has sufficient working capital to
continue until the end of August, 1997, assuming the Company has no revenues
from sales of its products and services and that it does not raise additional
capital through the sale of its securities and through loans, it may have to
cease operations until it can raise further capital.
The monthly operating costs do not take into account the remaining payment
which the Company has to make on the bankruptcy obligation. The remaining
payment owed on the bankruptcy obligation to SIS is $117,000. The Company has
paid on the bankruptcy obligations through June 30, 1997 a total of $2,204,000,
all of it financed from funds raised from the equity lenders and the private
placement, payment of which is now in default.
11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
At date hereof (August 15, 1997), the Company has current indebtedness of
approximately $160,000, including approximately $13,000 payable to the landlord
of the Company's place of business for two months rent, who is threatening
eviction.
In order to finance funding for operations of the Company as well as to
pay for the bankruptcy obligations, the Company has had to seek and shall seek
such funding through sales of its securities in private placements exempt from
registration under the Securities Act. No assurance or representation is made
by the Company it will be able to secure such funding.
RESULTS OF OPERATIONS
During the nine months ended June 30, 1997 and 1996, the Company had
revenues from sales of $12,000 and $ -0-, respectively. During the same period,
operating costs increased $40,000 or 5%, as compared to the corresponding prior
year period. This is primarily attributable to an increase in consulting
expenses. The main components of operating expenses are payroll and related
employment costs, outside consulting development costs, and research and
development costs. Said costs aggregated $811,000 for the 1997 period, as
compared with $760,000 for 1996.
General and administrative expenses increased $55,000 for the nine months
ended June 30, 1997, as compared to an increase of $20,000 in 1996. The 1997
period included higher professional and accounting fees, higher payroll and
related taxes, higher depreciation expense resulting from the acquisition of
fixed assets needed for anticipated sales, and higher telephone and traveling
expenses incurred in the solicitation of business. The other components of
general and administrative expenses remained relatively constant, as compared
with the prior year.
Interest expense decreased from $8,900 in 1996 to $3,200, or 60%, in 1997.
This is the result of the debt repayments made during the year as a result of
the bankruptcy plan.
12
<PAGE>
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
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits.
(b) Form 8K, February 7, 1997, reporting sale of 313,720 shares of
common stock under Regulation S exemption aggregating in gross $450,000.
Form 8K, February 28, 1997 reporting sale of 47,555 shares of
common stock under Regulation S exemption aggregating in gross $60,000.
Said form 8K's are incorporated here in reference.
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, 1997 By
--------------------------------
Thomas T. Harding, President
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 105,059 404,986
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 147,458 78,870
<CURRENT-ASSETS> 288,844 640,698
<PP&E> 212,622 238,908
<DEPRECIATION> 80,086 64,600
<TOTAL-ASSETS> 573,723 961,964
<CURRENT-LIABILITIES> 416,540 632,589
<BONDS> 0 0
0 0
0 0
<COMMON> 94,285 82,062
<OTHER-SE> 62,898 247,313
<TOTAL-LIABILITY-AND-EQUITY> 573,723 961,964
<SALES> 8,845 0
<TOTAL-REVENUES> 9,785 8,282
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 584,460 617,852
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,247 8,896
<INCOME-PRETAX> (577,922) (618,466)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (577,922) (618,466)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (577,922) (618,466)
<EPS-PRIMARY> (.06) (.09)
<EPS-DILUTED> 0 0
</TABLE>
