<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
AMENDMENT NO. 2
(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
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
IDENTIX INCORPORATED
(Exact name of registrant as specified in its charter)
California 94-2842496
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
510 N. Pastoria Avenue, Sunnyvale, California 94086
(Address of principal executive offices) (Zip Code)
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
<S> <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
Explanatory Note:
- ----------------
As previously announced, the Registrant is restating its financial statements
for the second, third and fourth quarters of fiscal 1996 based on a change in
the application of its revenue recognition policy for certain law enforcement
contracts. Accordingly, the Registrant is hereby amending and restating its
third quarter Form 10Q in its entirety as set forth in this Amendment No 2. on
Form 10Q/A.
PART I Item 1. FINANCIAL INFORMATION
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 10,474,000 8,158,000
Inventories 6,520,000 2,511,000
Prepaid expenses and other assets 220,000 511,000
------------ ------------
Total current assets 21,435,000 15,022,000
Property and equipment, net 1,935,000 1,249,000
Intangibles and other assets 2,617,000 1,833,000
------------ ------------
$ 25,987,000 $ 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 513,000 483,000
Current portion of long-term note 106,000 --
Deferred maintenance revenue 258,000 233,000
------------ ------------
Total current liabilities 8,282,000 5,451,000
Deferred maintenance revenue 210,000 287,000
Long-term note, less current portion 154,000 --
Other liabilities 89,000 92,000
------------ ------------
Total liabilities 8,735,000 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 (32,548,000) (27,163,000)
Cumulative translation adjustment (1,000) --
------------ ------------
Total shareholders' equity 17,252,000 12,274,000
------------ ------------
$ 25,987,000 $ 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 revenues $ 1,958,000 $ 2,018,000 $ 6,587,000 $ 6,197,000
Services revenues 6,444,000 4,891,000 16,071,000 13,554,000
----------- ----------- ----------- -----------
Total revenues 8,402,000 6,909,000 22,658,000 19,751,000
----------- ----------- ----------- -----------
Costs and expenses:
Cost of product revenues 1,116,000 1,211,000 3,894,000 3,670,000
Cost of services revenues 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 13,491,000 7,080,000 28,308,000 20,101,000
----------- ----------- ----------- -----------
Loss from operations (5,089,000) (171,000) (5,650,000) (350,000)
Other income (expense) 222,000 (25,000) 265,000 (132,000)
----------- ----------- ----------- -----------
Loss before income tax benefit (4,867,000) (196,000) (5,385,000) (482,000)
Income tax benefit -- 110,000 -- 110,000
----------- ----------- ----------- -----------
Net loss $(4,867,000) $ (86,000) $(5,385,000) $ (372,000)
=========== =========== =========== ===========
Net loss per common and
common equivalent share $ (0.21) $ * $ (0.23) $ (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 $ (5,385,000) $ (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 (2,164,000) (3,120,000)
Accounts receivable from Ascom Hasler -- 177,000
Inventories (3,775,000) (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 (207,000) (133,000)
Deferred maintenance revenue 234,000 115,000
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 in 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 accruals $ 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 significant 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 2,328,000 675,000
---------- ----------
$6,520,000 $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. The pro forma combined statements of operations do not include the
non-recurring write-off of acquired in-process research and development.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1996 1995
---- ----
<S> <C> <C>
Net revenues $23,366,000 $21,808,000
Net loss $ (909,000) $ (138,000)
Loss per share $ (0.04) $ (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*, I(3)*
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
$8,402,000 and $22,658,000, respectively, compared to $6,909,000 and $19,751,000
for the comparable periods in the prior fiscal year. The increase in revenues of
22% for the three month period ended March 31, 1996 was due primarily to an
increase in services business revenues. The increase in revenues of 15% for the
nine month period ended March 31, 1996 was due to increases in both the
Company's products business revenues and services business revenues.
The Company's net products revenues were $1,958,000 and $6,587,000 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 net product revenues of 6% for the nine month period ended March
31, 1996 is due primarily to increased shipments of the Company's TouchPrint
products and from the inclusion of Fingerscan revenues since the date of
acquisition offset by a decrease in revenues of the Company's fingerprint
identification subsystem that it sells to OEMs. During the nine month period
ended March 31, 1996, one customer accounted for 22% of the Company's net
products revenues. This customer is a prime contractor on certain contracts for
which the Company supplied product as a subcontractor. 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 as a percentage of net product
revenues, because the supply of products on the fiscal year 1996 contracts is
expected to be substantially fulfilled by the Company. International sales
represented $400,000 or 20% and $852,000 or 13% of the
- --------
* The Company has adopted TouchLock (TM), TouchSafe (TM), TouchClock (TM),
TouchPrint (TM), TouchView (TM), I(3) (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 . . .
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 remain relatively
constant.
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 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.
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 $1,116,000 or 57% and $3,894,000 or 59% of net 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 net 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 month period ended March 31, 1996
compared to the same period in the prior year is primarily due to a change in
the mix of products sold and manufacturing volume efficiencies.
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 18% and
$1,046,000 or 16% of net 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 net 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 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 13% and $2,706,000 or 12% 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 12% 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 released at the end of December 1996.
Research and development expediters 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 $4,867,000 or $0.21 loss per share and $5,385,000 or $0.23
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 accounts receivable and inventory,
which increases were financed in part 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 $10,474,000 from $8,158,000
at June 30, 1995. This increase is primarily due to (i) an increase in services
revenues, (ii) delays in payments on accounts receivable from the prime
contractor on certain commercial subcontracts and (iii) the inclusion of
Fingerscan accounts receivable at March 31, 1996.
Inventories at March 31, 1996, increased to $6,520,000 from $2,511,000 at June
30, 1995. This increase was due primarily to (i) the growth in product revenues
requiring higher stocking levels, (ii) inventory purchases for anticipated sales
that were not realized, 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.
9
<PAGE> 12
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED. . .
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 and
the growth of operations.
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. As of March 31, 1996, the Company was in default on one of
its bank line of credit covenants. The Company has obtained a waiver of default
from the bank for such covenant.
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.
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
$32,548,000. 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 one 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.
10
<PAGE> 13
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED. . .
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 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 cost 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.
11
<PAGE> 14
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED. . .
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.
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
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED. . .
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.
13
<PAGE> 16
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED. . .
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.
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
Exhibit
Number Description
------- -----------
11.1 Statement of Computation of Earnings Per Share
27.1 Financial Data Schedule
(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
September 12, 1996
BY: /s/ James P. Scullion
-------------------------------
James P. Scullion
Chief Financial Officer
Vice President of Finance
16
<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 $(4,867,000) $ (86,000) $(5,385,000) $ (372,000)
=========== =========== =========== ===========
Number of shares used in computing per share amounts:
Weighted average common shares 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 $ (0.21) $ (b) $ (0.23) $ (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 STATEMENTS 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>
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 4,221,000
<SECURITIES> 0
<RECEIVABLES> 10,922,000
<ALLOWANCES> 448,000
<INVENTORY> 6,520,000
<CURRENT-ASSETS> 21,435,000
<PP&E> 1,935,000<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 25,987,000
<CURRENT-LIABILITIES> 8,282,000
<BONDS> 0
0
0
<COMMON> 49,801,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,987,000
<SALES> 6,587,000
<TOTAL-REVENUES> 22,658,000
<CGS> 3,894,000
<TOTAL-COSTS> 28,308,000
<OTHER-EXPENSES> 0<F2>
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0<F2>
<INCOME-PRETAX> (5,385,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,385,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,385,000)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> 0<F2>
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT IS SHOWN NET OF ACCUMULATED DEPRECIATION.
<F2>NOT SHOWN SEPARATELY WHEN REPORTING 10-Q.
</FN>
</TABLE>
