<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
AMENDMENT NO. 1
(Mark one)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --
Act of 1934.
For the quarterly period ended March 31, 1996 or
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_______Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________________ to ______________________
Commission File Number: 1-9641
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IDENTIX INCORPORATED
--------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
California 94-2842496
- ----------------------------------------------------------- --------------------------------
(State or other jurisdiction of incorporation of (IRS Employer Identification No.)
organization)
</TABLE>
<TABLE>
<S> <C>
510 N. Pastoria Avenue, Sunnyvale, California 94086
- --------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (408) 739-2000
--------------
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 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 such
filing requirement for the past 90 days. YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
24,061,242 shares of Common Stock
as of April 30, 1996
<PAGE> 2
IDENTIX INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - March 31, 1996 and June 30, 1995 . . . . . . . 1
Consolidated Statements of Operations - Three months ended
March 31, 1996 and 1995; and nine months ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows - nine months ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . 7
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE> 3
IDENTIX INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,221,000 $ 3,842,000
Accounts receivable, less allowance for doubtful accounts
and sales returns of $448,000 and $347,000 13,792,000 8,158,000
Inventories 4,930,000 2,511,000
Prepaid expenses and other assets 220,000 511,000
----------- -----------
Total current assets 23,163,000 15,022,000
Property and equipment, net 1,935,000 1,249,000
Intangibles and other assets 2,617,000 1,833,000
----------- -----------
$27,715,000 $18,104,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 2,137,000 $ 2,101,000
Accounts payable 4,284,000 1,635,000
Accrued compensation 984,000 999,000
Other accrued liabilities 574,000 483,000
Current portion of long-term note 106,000 -
Deferred maintenance revenue 258,000 233,000
----------- -----------
Total current liabilities 8,343,000 5,451,000
Deferred maintenance revenue 325,000 287,000
Long-term note, less current portion 154,000 -
Other liabilities 89,000 92,000
----------- -----------
Total liabilities 8,911,000 5,830,000
----------- -----------
Commitments and contingencies (Note 5)
Shareholders' equity:
Common stock, no par; 30,000,000 shares authorized;
24,061,242 and 21,520,879 shares issued and outstanding 49,801,000 39,437,000
Accumulated deficit (30,996,000) (27,163,000)
Cumulative translation adjustment (1,000) -
----------- -----------
Total shareholders' equity 18,804,000 12,274,000
----------- -----------
$27,715,000 $18,104,000
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
1
<PAGE> 4
IDENTIX INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 3,003,000 $ 2,018,000 $ 9,729,000 $ 6,197,000
Services 6,444,000 4,891,000 16,071,000 13,554,000
----------- ----------- ----------- -----------
Total revenues 9,447,000 6,909,000 25,800,000 19,751,000
----------- ----------- ----------- -----------
Costs and expenses:
Cost of product sales 1,640,000 1,211,000 5,484,000 3,670,000
Cost of services provided 5,215,000 4,178,000 13,153,000 11,529,000
Research, development and engineering 358,000 398,000 1,046,000 1,209,000
Marketing and selling 1,070,000 651,000 2,706,000 1,753,000
General and administrative 1,009,000 642,000 2,786,000 1,940,000
Write off of acquired in process
research and development 4,723,000 - 4,723,000 -
----------- ----------- ----------- -----------
Total costs and expenses 14,015,000 7,080,000 29,898,000 20,101,000
---------- ----------- ---------- -----------
Loss from operations (4,568,000) (171,000) (4,098,000) (350,000)
Other income (expense) 222,000 (25,000) 265,000 (132,000)
------------- ----------- ----------- -----------
Loss before income tax benefit (4,346,000) (196,000) (3,833,000) (482,000)
Income tax benefit - 110,000 - 110,000
----------- ----------- ----------- -----------
Net loss $(4,346,000) $ (86,000) $(3,833,000) $ (372,000)
=========== =========== =========== ===========
Net loss per common and
common equivalent share $ (0.19) $ * $ (0.17) $ (0.02)
=========== =========== =========== ===========
Weighted average common
and common equivalent shares 23,358,000 19,503,000 23,072,000 19,182,000
=========== =========== =========== ===========
</TABLE>
* less than $0.01 loss per share
See accompanying notes to these consolidated financial statements.
2
<PAGE> 5
IDENTIX INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD
ENDED MARCH 31,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,833,000) $ (372,000)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 1,043,000 907,000
Amortization of deferred maintenance revenue (286,000) (136,000)
Write-off of acquired in-process research and development 4,723,000 -
Changes in assets and liabilities, net of the effects of acquisition:
Accounts receivable (5,482,000) (3,120,000)
Accounts receivable from Ascom Hasler - 177,000
Inventories (2,185,000) (394,000)
Prepaid expenses and other assets 291,000 (47,000)
Accounts payable 2,493,000 (298,000)
Accrued compensation (32,000) 362,000
Other accrued liabilities (146,000) (133,000)
Deferred maintenance revenue 349,000 115,000
Other liabilities (3,000) (3,000)
------------ ------------
Net cash used for operating activities (3,068,000) (2,942,000)
------------ ------------
Cash flows used in investing activities:
Capital expenditures (1,399,000) (581,000)
Additions to intangibles and other assets (510,000) (148,000)
Cash received in acquisition 156,000 -
Proceeds from sale of property and equipment - 14,000
------------ ------------
Net cash used for investing activities (1,753,000) (715,000)
------------ ------------
Cash flows from financing activities:
Borrowings under bank lines of credit 10,336,000 10,550,000
Payments under bank lines of credit (10,300,000) (9,032,000)
Borrowings under long-term note 318,000 -
Principal payments on long-term notes (58,000) -
Proceeds from sale of common stock and warrants, net 4,905,000 1,762,000
Other, net (1,000) -
------------ ------------
Net cash provided by financing activities 5,200,000 3,280,000
------------ ------------
Net increase in cash and cash equivalents 379,000 (377,000)
Cash and cash equivalents at beginning of period 3,842,000 799,000
------------ ------------
Cash and cash equivalents at end of period $ 4,221,000 $ 422,000
============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
3
<PAGE> 6
IDENTIX INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED . . .
Non-cash investing and financing activities:
In connection with ANADAC's bank line-of-credit agreement, ANADAC obtained an
ESOP loan. As the ESOP makes payments on the debt, the Company's debt and
corresponding receivable are reduced. As of June 30, 1995, the ESOP loan was
paid in full. During the nine months ended March 31, 1995, the ESOP made
payments of $70,000.
On March 26, 1996, the Company acquired Fingerscan Pty Limited pursuant to a
share purchase agreement whereby Fingerscan became a wholly owned subsidiary of
the Company (Note 3). The merger was accounted for as a purchase as follows:
<TABLE>
<S> <C>
Cash $ 156,000
Accounts receivable 152,000
Inventory 234,000
Property and equipment, net 23,000
Intangible and other assets 581,000
In-process research and development 4,723,000
-----------
$ 5,869,000
===========
Accounts payable and other accrueds $ 393,000
Accrued compensation 17,000
Common stock 5,459,000
-----------
$ 5,869,000
===========
</TABLE>
See accompanying notes to these consolidated financial statements.
4
<PAGE> 7
IDENTIX INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These consolidated financial statements are unaudited. However, in the
opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair presentation of the
financial position and results of operations for the interim period have
been included. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto for the year ended June 30, 1995 included in the Company's Form
10-K. These consolidated financial statements include the accounts of
Identix Incorporated (the Company) and its wholly-owned subsidiaries,
ANADAC, Inc. (ANADAC) and, for the period from March 27, 1996 to March 31,
1996, Fingerscan Pty Limited (Fingerscan); all intercompany balances and
transactions have been eliminated in consolidation. The results of
operations for the nine months ended March 31, 1996 are not necessarily
indicative of results to be expected for the entire fiscal year, which
ends on June 30, 1996.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
---------- ----------
<S> <C> <C>
Purchased parts and materials $3,168,000 $1,193,000
Work-in-process 1,024,000 643,000
Finished goods 738,000 675,000
----------- -----------
$4,930,000 $2,511,000
========== ==========
</TABLE>
3. ACQUISITION OF FINGERSCAN PTY LIMITED
On March 26, 1996, the Company acquired Fingerscan Pty Limited, a
privately-held Australian-based company that designs and markets biometric
identity and verification products, pursuant to a Share Purchase Agreement
whereby Fingerscan became a wholly owned subsidiary of the Company.
Pursuant to the Share Purchase Agreement, the shareholders of Fingerscan
were issued 668,976 shares of the Company's no par value common stock.
The Company's results for the three and nine month periods ended March 31,
1996 include the operations of Fingerscan from the date of acquisition.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based upon the fair values at the date of
acquisition. Based upon an appraisal by an investment banking firm, the
value of the 668,976 shares of the Company's common stock issued in the
acquisition was determined to be $5,459,000 reflecting a 32% discount from
the then current market price for certain restrictions related to the
resale of the common stock used to purchase Fingerscan. The excess of the
purchase price over the fair market value of the net tangible assets
acquired aggregated approximately $5,280,000, of which $4,723,000 was
allocated to in-process research and development and $557,000 was
allocated to other intangibles including acquired technology. An
independent appraisal was performed which used the income approach to
determine the fair value of Fingerscan and its identifiable assets,
including the portion of the purchase price attributed to the in-process
research and development. The income approach includes an analysis of
the markets, completion costs, cash flows, other required assets,
contributions made by core technology, and risks associated with achieving
such cash flows. The developmental products acquired were evaluated in
context of Interpretation 4 of SFAS No. 2 and SFAS No. 86 and the
identified in-process research and development was expensed in accordance
of these provisions as technological feasibility had not yet been reached.
The accompanying consolidated statements of operations for the three and
nine month periods ended March 31, 1996 include a charge of $4,723,000 for
the write-off of the in-process research and development acquired in
connection with the acquisition. The in-process research and development
charge represents a multiple of approximately 19 times Fingerscan's
trailing twelve month's research and development expenditures.
5
<PAGE> 8
3. ACQUISITION OF FINGERSCAN PTY LIMITED (CONTINUED)
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Fingerscan as if the
acquisition had occurred on July 1, 1995, with pro forma adjustments to
give effect to amortization of the intangibles including acquired
technology and certain other adjustments together with related income tax
effects.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $ 26,508,000 $21,808,000
Net loss $ (4,080,000) $ (138,000)
Loss per share $ (0.17) $ (0.01)
</TABLE>
4. COMMON STOCK
During the period from July 1 to July 5, 1995, the Company received
additional net proceeds of $2,428,000 from the exercise of warrants and
issuance of 891,345 shares of common stock related to a warrant redemption
program that commenced on June 6, 1995. On July 6, 1995, the Company
redeemed 3,210 unexercised warrants for $0.05 per warrant, then
subsequently sold 3,210 shares of the Company's common stock to a standby
underwriter for $3.00 per share.
During the nine month period ended March 31, 1996, the Company received
net proceeds of $1,155,000 from the issuance of 376,000 shares of common
stock upon the exercise of outstanding warrants and $1,312,000 from the
issuance of 600,865 shares of common stock upon the exercise of
outstanding stock options.
On March 26, 1996, the Company acquired Fingerscan Pty Limited. Pursuant
to the acquisition agreement, the shareholders of Fingerscan were issued
668,976 shares of the Company's no par value common stock. Based upon an
appraisal by an investment banking firm, the value of the 668,976 shares
issued in the acquisition was determined to be $5,459,000 reflecting a
discount for certain restrictions related to the resale of the common
stock used to purchase Fingerscan.
5. CONTINGENT LIABILITIES
The Company is a defendant in a patent infringement lawsuit filed against
the Company by a competitor related to certain of the Company's TouchPrint
products. The lawsuit has no implication for any other Identix products.
Currently, the parties are engaged in ongoing discovery. In addition,
Identix has filed a motion requesting the court to determine that the
TouchPrint product currently on the market, the TouchPrint 600, does not
infringe. The Company has established a reserve for the Company's estimate
of the legal expense to seek dismissal of the lawsuit. The Company will
defend this matter vigorously and believes that it is unlikely that the
outcome of this lawsuit will have a material adverse effect on the
Company's financial position or results of operations.
6
<PAGE> 9
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Identix Incorporated ("Identix" or "the Company") began operations in its
products business in mid-1982. In its products business, the Company designs,
develops, manufactures, and markets personal verification terminals ("PVTs")
for security applications and products for law enforcement and public sector
applications that operate by optically scanning and analyzing fingerprint
images. The Company's principal PVT products are TouchLock*, TouchSafe*,
TouchClock* and a fingerprint identification subsystem that the Company
manufactures and markets to OEMs. The Company's principal products for law
enforcement and public sector applications are TouchPrint*, TouchView*, I3*
workstation and DocuColor*.
On March 26, 1996, the Company acquired Fingerscan Pty Limited ("Fingerscan"),
a privately-held Australian-based company that designs and markets biometric
identity and verification products. Fingerscan had been a long-standing
Identix OEM partner integrating Identix fingerprint identification technology
into Fingerscan's fingerprint identity and verification products and systems.
Fingerscan's primary biometric identity and verification products are
Fingerscan*, Fingerlan 1* and Fingerlan 2*.
The Company's wholly-owned subsidiary, ANADAC, Inc. ("ANADAC"), provides
information technology, engineering and management consulting services for
clients in the public and private sectors. Identix acquired ANADAC on October
23, 1992.
The statements in this report that relate to future plans, events, or
performance are forward-looking statements. Actual results, events and
performance may differ materially due to a variety of factors including the
factors described under "Factors That May Affect Future Results, Events, or
Performance" below. Readers are cautioned not to place undo reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
Revenues for the three and nine month periods ended March 31, 1996 were
$9,447,000 and $25,800,000, respectively, compared to $6,909,000 and
$19,751,000 for the comparable periods in the prior fiscal year. The increase
in revenues of 37% and 31% for the three and nine month periods ended March 31,
1996 was due to increases in both the Company's products business revenues and
services business revenues.
The Company's products revenues were $3,003,000 and $9,729,000 for the three
and nine month periods ended March 31, 1996, respectively, compared to
$2,018,000 and $6,197,000 for the comparable periods in the prior fiscal year.
The increase in product revenues of 49% and 57% for the three and nine month
periods ended March 31, 1996, respectively, is primarily due to increased
shipments of the Company's TouchPrint products. International sales
represented $400,000 or 13% and $852,000 or 9% of the Company's products
business revenues for the three and nine month periods ended March 31, 1996,
respectively, compared to $691,000 or 34% and $2,374,000 or 38% for the same
periods in the prior fiscal year. International sales are denominated in U.S.
dollars. For the remainder of fiscal 1996, international sales as a percentage
of product sales are expected to increase. During the nine month period ended
March 31, 1996, one customer accounted for 40% of the Company's products
revenues. For the remainder of fiscal 1996, the Company expects revenues from
this customer will continue to be significant. For fiscal 1997, the Company
expects revenues from this customer will be significantly less than in fiscal
1996, both in absolute dollars and as a percentage of product revenues.
The Company's services revenues were $6,444,000 and $16,071,000 for the three
and nine month periods ended March 31, 1996, respectively, compared to
$4,891,000 and $13,554,000 for the comparable periods in the prior fiscal year.
__________________________________
* The Company has adopted TouchLock TM, TouchSafe TM , TouchClock TM ,
TouchPrint TM, TouchView TM, I3 TM, DocuColor TM, Fingerscan TM, Fingerlan 1
TM, and Fingerlan 2 TM as trademarks, which have not been registered with the
U.S. Patent and Trademark Office.
7
<PAGE> 10
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
The increase in services revenues of 32% and 19% for the three and nine month
periods ended March 31, 1996, respectively, is primarily due to increases in
contract revenues to provide engineering services to the Naval Sea Systems
Command and commercial contract revenues generated by ANADAC's Information
Technology Group. The majority of the Company's services business revenues are
generated from contracts with the U.S. government, principally the Department
of Defense ("DOD"). Revenues from the DOD and from other U. S. government
agencies for the three and nine month periods ended March 31, 1996 accounted
for 69% and 74%, respectively, of the Company's total services business
revenues compared to 75% of the Company's total services business revenues for
each of the comparable periods in the prior fiscal year. Government
projections indicate a continuing decline in the levels of DOD spending, which
the Company believes will result in increased competition and may result in a
decline in DOD revenues as a percentage of total services revenue.
The Company's services business generates a significant amount of its revenues
from cost plus fixed fee ("CPFF") contracts, which accounted for approximately
39% and 42% of its revenues for the three and nine month periods ended March
31, 1996 compared to 48% for each of the comparable periods in the prior fiscal
year. CPFF contracts provide for the reimbursement of allowable costs,
including indirect costs plus a fee or profit. The Company's services business
also generates revenue from time-and-materials ("T&M") contracts and firm
fixed-price ("FFP") contracts. T&M contracts typically provide for payment of
negotiated hourly rates for labor incurred plus reimbursement of other
allowable direct and indirect costs. FFP contracts provide for a fixed price
for stipulated services or products, regardless of the costs incurred. The
Company anticipates that revenues from CPFF contracts will decline as a
percentage of its total services business revenues and that the Company's
revenues from FFP and T&M contracts will increase as a percentage of its total
services business revenues. The Company assumes greater performance risk on
FFP and T&M contracts and the failure to accurately estimate ultimate costs or
to control costs during performance of the work can result in reduced profit
margins or losses. There can be no assurance that the Company's services
business will not incur cost overruns for any FFP and T&M contracts it is
awarded.
Cost of product sales was $1,640,000 or 55% and $5,484,000 or 56% of product
revenues for the three and nine month periods ended March 31, 1996 compared to
$1,211,000 or 60% and $3,670,000 or 59% of product revenues for the same
periods in the prior fiscal year. The decrease in cost of product sales as a
percentage of product revenues for the three and nine month periods ended March
31, 1996 compared to the same periods in the prior year is mainly due to
manufacturing volume efficiencies and lower product cost as a percentage of
product sales on certain new products introduced in mid fiscal year 1995.
Cost of services provided was $5,215,000 or 81% and $13,153,000 or 82% of
services revenues for the three and nine month periods ended March 31, 1996
compared to $4,178,000 or 85% and $11,529,000 or 85% of services revenues for
the comparable periods in the prior fiscal year. The decrease in cost of
services provided as a percentage of services revenues is mainly due to
applying the overhead pool across a larger labor base.
Research, development and engineering expenditures were $358,000 or 12% and
$1,046,000 or 11% of product revenues for the three and nine month periods
ended March 31, 1996, respectively, compared to $398,000 or 20% and $1,209,000
or 20% of product revenues for the same periods in the prior fiscal year.
Research, development and engineering expenses were higher in the prior year
periods because the Company was incurring significant research and development
expenses during such periods to complete its new TouchPrint product line which
was introduced in October 1994 and its new TouchSafe product which was
introduced in April 1995. The Company expects research, development and
engineering expenses to increase in future quarters.
Marketing and selling expenses were $1,070,000 or 11% and $2,706,000 or 10% of
total revenues for the three and nine month periods ended March 31, 1996,
respectively, compared to $651,000 and $1,753,000 or 9% of total revenues for
the same periods in the prior fiscal year. The increase in marketing and
selling expenses is due to increased staffing and expenses to promote and
support the Company's products and services.
8
<PAGE> 11
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
General and administrative expenses were $1,009,000 and $2,786,000 or 11% of
total revenues for each of the three and nine month periods ended March 31,
1996, respectively, compared to $642,000 or 9% and $1,940,000 or 10% of total
revenues for the same periods in the prior fiscal year. The increase in
general and administrative expenses is primarily due to an increase in staffing
and in lease expense as the Company's services business moved into larger
facilities in August 1995. The Company's lease expense for fiscal 1996 will
continue to increase when the Company moves its manufacturing facilities into a
new building in June 1996.
On March 26, 1996, the Company acquired Fingerscan, a privately-held
Australian-based company that designs and markets biometric identity and
verification products. The excess of the purchase price over the fair market
value of the assets purchased and liabilities assumed was $5,280,000, of which
$4,723,000 was allocated to in-process research and development which was
written-off in the quarter ended March 31, 1996 (see Note 3). The Company
believes there are significant developmental issues remaining to develop the
acquired in-process research and development into commercially viable products.
The Company estimates that if it can successfully develop the acquired
in-process research and development into commercially viable products, the
first product incorporating such technology will be released at the end of
December 1996. Research and development expenditures required to develop this
first product are estimated at approximately $500,000.
Other income was $222,000 and $265,000 for the three and nine month periods
ended March 31, 1996, respectively, compared to an expense of $25,000 and
$132,000 for the same periods in the prior fiscal year. The increase in other
income is attributable to an increase in interest income earned on the
temporary investments of higher cash balances and the proceeds from a licensing
arrangement related to one of the Company's trademarks.
During the nine month period ended March 31, 1996, Identix did not borrow
against its bank line of credit. The weighted average interest rate paid by
ANADAC on its bank line of credit for each of the three month and nine month
periods ended March 31, 1996 was 8.3% and 8.6%, respectively.
For the three and nine month periods ended March 31, 1996, the Company had net
losses, including the write-off of acquired in-process research and development
of $4,723,000, of $4,346,000 or $0.19 loss per share and $3,833,000 or $0.17
loss per share, respectively, compared to a net loss of $86,000 or less than
$0.01 loss per share for three month period ended March 31, 1995 and a net loss
of $372,000 or $0.02 loss per share for the nine month period ended March 31,
1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $4,221,000 at March 31, 1996 as compared
to $3,842,000 at June 30, 1995. The increase in cash and cash equivalents of
$379,000 is due primarily to the following activities. The Company received
$4,905,000 during the nine month period ended March 31, 1996 in net proceeds
from the exercise of warrants and stock options and issuance of common stock as
follows: $3,593,000 related to warrant exercises, including warrants exercised
in the warrant redemption program, and $1,312,000 from the exercise of stock
options. Operating activities during the nine month period ended March 31,
1996 used cash of $3,068,000 primarily to finance increases in accounts
receivable and inventory, which increases were in part financed by an increase
in accounts payable, each discussed below. Investing activities during the
nine month period ended March 31, 1996 used cash of $1,753,000 to purchase
office equipment, production equipment and leasehold improvements and to
develop product software.
Accounts receivable at March 31, 1996, increased to $13,792,000 from $8,158,000
at June 30, 1995. This increase was due primarily to the growth in overall
revenues, as well as unexpected delays in payment under two contracts for which
the Company acts as a subcontractor. The delays were due primarily to the
Company extending payment terms to the prime contractor similar to the terms
the prime contractor has with the government agencies. During fiscal 1996 the
Company shipped product and provided services to the prime contractor totaling
approximately $3,800,000, of which $3,000,000 remains outstanding at March 31,
1996. Based on the agreed upon payment terms, the Company estimates it will
receive payments totaling approximately $450,000 during the fourth quarter of
fiscal 1996, $550,000 during the first quarter of fiscal 1997 and the remaining
$2,000,000 during the second quarter of fiscal 1997.
Inventories at March 31, 1996, increased to $4,930,000, compared to $2,511,000
at June 30, 1995. This increase was due primarily to (i) the growth in product
revenues requiring higher stocking levels, (ii) certain product sales falling
short of forecast, and (iii) an increase in the stocking level of a key
component discontinued by a manufacturer. The Company has located a
replacement for the component and is designing the replacement component into
the Company's product.
Accounts payable at March 31, 1996, increased to $4,284,000 from $1,635,000 at
June 30, 1995. This increase was mainly due to the increase in inventories.
The Company has a $3,000,000 bank line of credit secured by all of the
personal property of Identix. Under the line of credit the Company may borrow
up to 80% of eligible accounts receivable. Amounts drawn bear interest at the
bank's prime rate of interest plus 0.5% per annum. The line of credit expires
on June 5, 1996. There were no borrowings under this bank line of credit
during the nine months ended March 31, 1996. At March 31, 1996, $1,953,000 was
available under the line of credit.
ANADAC has a $4,000,000 bank line of credit secured by its accounts receivable
and certain other assets. Amounts drawn bear interest at the bank's prime rate
of interest. The line of credit expires on October 31, 1996. As of March 31,
1996, ANADAC had $2,137,000 outstanding and $1,730,000 available under the line
of credit.
9
<PAGE> 12
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED. . .
ANADAC has a $400,000 equipment financing line of credit secured by the
equipment purchased under the line of credit. Amounts used bear interest at
the bank's prime rate plus 0.75% per annum. The amortization term is not to
exceed thirty six months. As of March 31, 1996, ANADAC had $260,000 borrowed
under this line of credit.
Identix did not have any material capital expenditure commitments as of March
31, 1996.
FACTORS THAT MAY AFFECT FUTURE RESULTS, EVENTS OR PERFORMANCE
The Company wishes to caution readers that the following important
factors, among others, may affect the Company's future results, events or
performance and could cause actual results, events or performance to differ
materially from those expressed in any forward-looking statements made by the
Company in this report or presented elsewhere by the Company from time to time.
HISTORY OF LOSSES
At March 31, 1996, the Company had an accumulated deficit of approximately
$30,996,000. The Company experienced net losses in each year since inception,
including net losses of $715,000 in the year ended June 30, 1995. Although the
Company has recorded net profits in two of the last three quarters, there can be
no assurance that the Company will continue to achieve profitability in any
future periods.
UNCERTAINTY RELATED TO CONTRACTS WITH GOVERNMENT AGENCIES; UNPREDICTABLE
REVENUE CYCLE
A substantial portion of the Company's revenues are from government
agencies. As a result, economic and political conditions beyond the Company's
control will affect the performance of the Company. Government agencies are
subject to political and budgetary constraints and purchases of the Company's
products and services may be canceled or substantially delayed due to political
and budgetary processes. In addition, the Company's contracts with local
government agencies may be contingent upon availability of matching funds from
state or federal entities. Government agencies also frequently require
provisions in contracts that are not standard in private commercial
transactions, such as bonding requirements and provisions permitting the
purchasing agency to cancel the contract without penalty if funding for the
contract is no longer available or is not obtained. The nature of the law
enforcement market and the government procurement process has resulted in, and
is expected to continue to result in, an irregular and unpredictable revenue
cycle for the Company's products business. Accordingly, the Company's
performance in any one period is not necessarily indicative of sales trends or
future performance. In addition, sales to government agencies are contingent
upon the Company's ability to meet a number of government requirements.
DEPENDENCE OF SERVICES BUSINESS ON U.S. DEPARTMENT OF DEFENSE
During the fiscal year ended June 30, 1995 and the nine month period ended
March 31, 1996, the Company's services business derived approximately 79% and
74%, respectively, of its revenue from contracts relating to the Department of
Defense ("the DOD") and other United States government agencies. Because
of budget cuts affecting the DOD, services revenues from the DOD have been
declining. Government projections indicate a continuing decline in the levels
of DOD spending, which the Company believes will result in increased
competition and may result in a further decline in DOD revenues as a percentage
of service revenues. The Company has been expanding its services business to
other government agencies and commercial organizations, but there can be no
assurance that the results of these efforts will be substantial enough to
offset any further decline in revenue from the DOD. There can be no assurance
that the Company's services business will not be adversely affected by further
cuts in the DOD budget.
The Company's services business generates a significant amount of its
revenues from cost plus fixed fee ("CPFF") contracts under which the
contracting party is paid its allowable costs incurred plus a predetermined fee
or profit. During the fiscal
10
<PAGE> 13
year ended June 30, 1995 and the nine months ended March 31, 1996, the Company
derived approximately 47% and 42% of its services revenues from CPFF contracts.
The Company's services business also generates revenue from time-and- materials
("T&M") contracts and firm fixed-price ("FFP") contracts. T&M contracts
typically provide for payment of negotiated hourly rates for labor incurred plus
reimbursement of other allowable direct and indirect costs. FFP contracts
provide for a fixed price for stipulated services or products, regardless of the
costs incurred, which may result in losses from cost overruns. The Company
anticipates that revenues from CPFF contracts will continue to decline as a
percentage of its total services revenues and that the Company's revenues from
FFP and T&M contracts will increase as a percentage of its total services
revenues. The Company assumes greater performance risk on FFP and T&M contracts
and the failure to estimate accurately ultimate costs or to control costs
during performance of the work can result in reduced profit margins or losses.
There can be no assurance that the Company's services business will not incur
such overruns for any FFP contracts it is awarded.
DEPENDENCE UPON NEW AND UNCERTAIN MARKETS
All of the Company's product revenues to date have been, and for the
foreseeable future are anticipated to be, derived from the sale of biometric
PVTs and products for law enforcement and other public sector applications.
The Company's success in the products business will depend upon the development
and expansion of the market domestically and internationally for such biometric
products. To date, biometric products have made only very limited penetration
into various potential markets and there can be no assurance that the size of
the market for these products will grow. If the market fails to grow or grows
more slowly than anticipated, the Company's business, financial condition and
results of operations would be materially adversely affected.
COMPETITION AND TECHNOLOGICAL CHANGE
The markets for personal identity verification products and live-scan
systems are subject to continuing technological change, both as a result of
technical developments exploited by competitors and as a result of the changing
technical needs of the customers. In order to compete effectively in this
environment, the Company must be able continually to develop and market new and
enhanced products. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be able to make the technological advances necessary to compete
successfully in its products business. Some of the Company's present and
potential competitors have financial, marketing and research resources vastly
greater than those of the Company. Existing and new competitors may enter or
expand their efforts against the Company's product markets, or develop new
products to compete against the Company's products. There can be no assurance
that the Company's products will be able to compete successfully with the
products of its competitors.
The Company faces substantial competition from professional services
providers of all sizes in the government professional services market. The
Company competes by positioning itself to support specialized market niches,
aligning with technology leaders and maintaining a competitive cost structure.
There can be no assurance that the Company will be able to compete successfully
in its services business.
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS
To date, the Company's research, development and marketing efforts have
primarily concentrated on seven product types. The Company believes that the
success of its products business will depend on its ability to develop,
manufacture and sell new products and product enhancements. Failure to do so
in a timely fashion could harm the Company's competitive position. New product
introductions may contribute to fluctuations in quarterly operating results,
because customers may forego ordering the Company's existing products. If new
products have reliability or quality problems, then the Company may experience
reduced orders, higher manufacturing costs, delays in collecting accounts
receivable and additional service and warranty expense. There can be no
assurance that the Company will successfully develop and manufacture any new
products or product enhancements, or that new products or product enhancements
introduced by the Company will be accepted in the marketplace.
11
<PAGE> 14
PROPRIETARY TECHNOLOGY
The success of the Company's products business will depend in part on its
proprietary technology. While the Company attempts to protect its proprietary
technology through patents, copyrights and trade secrets, it believes that its
success will depend more upon innovation, technological expertise and
distribution strength. There can be no assurance that the Company will be able
to protect its technology or that competitors will not be able to develop
similar technology independently. No assurance can be given that the claims
allowed on any patents held by the Company will be sufficiently broad to protect
the Company's technology. In addition, no assurance can be given that any
patents issued to the Company will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company. The loss of patent protection on the Company's
technology or the circumvention of its patent protection by competitors could
have a material adverse effect on the Company's ability to compete successfully
in its products business.
The commercial success of Identix's products and processes will also
depend in part on not infringing patents or proprietary rights of third parties
which may relate to the Company's technologies and products. A competitor has
filed a lawsuit against the Company alleging that certain of the Company's
TouchPrint products violate the competitor's patent. Although the Company
believes that it will prevail in this litigation, there can be no assurance
that the outcome of this litigation will not have a material adverse effect on
the Company's business, financial position or results of operations. In
addition, there can be no assurance that Identix has not or will not infringe
the patents or proprietary rights of others or that it will be able to obtain a
license to any third party technology that it may require to conduct its
business or that, if obtainable, such technology can be licensed at a
reasonable cost. Failure by the Company to obtain a license to any technology
that it may require to commercialize its technologies, processes or products
may have a material adverse effect on the Company.
Litigation, which could result in substantial cost to the Company, may
also be necessary to enforce any patents issued to Identix or to determine the
scope and validity of other parties' proprietary rights. If the outcome of any
such litigation is adverse to the Company, its business could be adversely
affected. To determine the priority of inventions, the Company may have to
participate in interference proceedings declared by the United States Patent
and Trademark Office or foreign patent offices which could result in
substantial cost to the Company.
The Company also relies on trade secrets and proprietary know-how which it
seeks to protect by confidentiality agreements with its employees and
consultants and with third parties. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that its trade secrets and proprietary know-how will not
otherwise become known or be independently discovered by competitors.
12
<PAGE> 15
SHARE HOLDINGS OF ASCOM HOLDING
As of March 31, 1996, Ascom Holding Inc. ("Ascom Holding"), a wholly
owned subsidiary of Ascom Holding AG, a Swiss Company ("Ascom"), beneficially
owned approximately 23% of the outstanding Common Stock. This concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company. On September 2, 1994, the Company entered into a Voting Trust
Agreement ("Voting Trust Agreement") with Ascom whereby Ascom deposited all of
its 5,418,224 shares of the Company's Common Stock ("Voting Stock") into a
voting trust ("Voting Trust"). The Trustee has voting control
of the Voting Stock. The term of the Voting Trust Agreement is ten years.
Ascom has preemptive rights with respect to issuances of the Company's
securities and registration rights with respect to the securities it holds.
The Company's ability to obtain additional financing on favorable terms in the
future may be adversely affected by the existence of these preemptive rights
and registration rights.
DEPENDENCE ON KEY EMPLOYEES
The future success of the Company is dependent in part on its ability to
retain certain key personnel. The Company also needs to attract additional
skilled personnel in certain areas of its business to continue to grow. There
can be no assurance that the Company will be able to retain its existing
personnel or attract additional qualified employees in the future.
DEPENDENCE ON SUPPLIERS
Certain of the components included in Identix's personal identity
verification and live-scan systems are obtained from a single source or a
limited group of suppliers. Although Identix seeks to reduce dependence on
these sole and limited source suppliers, the partial or complete loss of
certain of these sources could result in delays and require the incurrence of
development costs to establish alternative sources which could have a material
adverse effect on the Company's results of operations and damage customer
relationships. Further, a significant increase in the price of one or more of
these components could adversely affect the Company's results of operations.
UNCERTAINTY OF MARKET ACCEPTANCE
The Company has strategic relationships regarding certain of its products
in an effort to enhance its marketing efforts. There can be no assurance that
such strategic relationships, such as the Company's joint marketing arrangement
with Oracle Corp., will generate meaningful sales growth in the future.
In the services industry, ANADAC has begun to expand its marketing efforts
beyond the DOD to other government agencies and to the private sector because
the DOD has experienced budget cuts. There can be no assurance that ANADAC
will be able to compete successfully in these other markets.
REQUIREMENT FOR ADDITIONAL FUNDS
The Company has not yet achieved positive cash flow from operations of its
products business and may need additional financing to support operations of
its products business unless sales volume increases to a level sufficient to
generate positive cash flow. There can be no assurance that the Company will
be able to obtain such financing if needed, or that the terms of such financing
will be favorable to the Company. In the past, the Company has required
waivers from its banks regarding noncompliance with certain loan covenants and
there can be no assurance such waivers, if required, will be available in the
future. The Company believes that cash flow from operations, together with
existing working capital and two bank lines of credit maintained by the Company
will be adequate for its cash requirements through December 31, 1996.
PRODUCT RECALL AND PRODUCT LIABILITY
There is a risk, that for unforeseen reasons, Identix may be required to
repair or replace a substantial number of products in use or to reimburse
persons for products that fail. Any one of these circumstances could adversely
affect the Company's results of operations. The Company does carry product
liability insurance, but there can be no assurance that existing coverage is
adequate for current operations or will be adequate for future operations. The
Company's business could be adversely affected by the assertion of product
liability claims.
13
<PAGE> 16
VOLATILITY OF MARKET PRICE OF COMMON STOCK
From July 1, 1993 through March 31, 1996, the Common Stock traded within a
range of $1.75 to $16.75 per share. The market price of the Common Stock is
subject to significant fluctuations in response to variations in quarterly
operating results and other factors such as the timing and volume of government
procurements for the Company's products or services, announcements of
technological innovations or new products or services by the Company or by the
Company's competitors and developments in patent or other proprietary rights.
In addition, the stock market has recently experienced significant price
fluctuations, often unrelated to the operating performance of the specific
companies whose stocks are traded. Broad market fluctuations, as well as
economic conditions generally and in the Company's products and services
industries specifically, may adversely affect the market price of the Common
Stock.
14
<PAGE> 17
IDENTIX INCORPORATED
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On May 31, 1995, Digital Biometrics, Inc. ("DBI"), a
competitor, filed a lawsuit in the United States District
Court in the Northern District of California against the
Company alleging that certain of the Company's TouchPrint
products violate a DBI patent and seeking injunctive relief
and unspecified damages. The lawsuit has no implication for
other Identix products. Currently, the parties are engaged
in ongoing discovery. In addition, Identix has filed a motion
requesting the court to determine that the TouchPrint product
currently on the market, the TouchPrint 600, does not
infringe. The Company will defend this matter vigorously and
believes that it is unlikely that the outcome of this lawsuit
will have a material adverse effect on the Company's financial
position or results of operations. However, there can be no
assurance that the Company will be successful in defending the
action and, even if the Company is successful in defending the
action, the costs of such defense could be substantial.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
11.1 Statement of Computation of Earnings Per Share
27.1 Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K were filed by the Company
during the three month period ended March
31, 1996.
15
<PAGE> 18
IDENTIX INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IDENTIX INCORPORATED
July 31, 1996
BY: /s/James P. Scullion
------------------------------------
James P. Scullion
Chief Financial Officer
Vice President of Finance
16
<PAGE> 19
EXHIBIT INDEX
Exhibit 11.1 Statement of Computation of Earnings Per Share
Exhibit 27.1 Financial Data Schedule
<PAGE> 1
Exhibit 11.1
IDENTIX INCORPORATED
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(4,346,000) $ (86,000) $ (3,833,000) $ (372,000)
=========== =========== ============ ===========
Number of shares used in computing per share amounts:
Weighted average common outstanding 23,358,000 19,503,000 23,072,000 19,182,000
Common equivalent shares attributable to
stock options and warrants (a) (a) (a) (a)
----------- ----------- ------------ -----------
Total weighted average common and common
equivalent shares outstanding 23,358,000 19,503,000 23,072,000 19,182,000
=========== =========== ============ ===========
Net loss per share $ (0.19) $ (b) $ (0.17) $ (0.02)
=========== =========== ============ ===========
</TABLE>
(a) For the three and nine month periods ended March 31, 1996 and March
31, 1995, common equivalent shares had an anti-dilutive effect.
(b) Less than $0.01 loss per share.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS DATED AS OF
THE NINE MONTH PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,221,000
<SECURITIES> 0
<RECEIVABLES> 14,240,000
<ALLOWANCES> 448,000
<INVENTORY> 4,930,000
<CURRENT-ASSETS> 23,163,000
<PP&E> 1,935,000<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 27,715,000
<CURRENT-LIABILITIES> 8,343,000
<BONDS> 0
0
0
<COMMON> 49,801,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,715,000
<SALES> 9,729,000
<TOTAL-REVENUES> 25,800,000
<CGS> 5,484,000
<TOTAL-COSTS> 29,898,000
<OTHER-EXPENSES> 0<F2>
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0<F2>
<INCOME-PRETAX> (3,833,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,833,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,833,000)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0<F2>
<FN>
<F1>Property, Plant and Equipment is shown net of accumulated depreciation
<F2>Not shown separately when reporting 10Q
</FN>
</TABLE>
