<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(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
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-9111
----------------------
PATLEX CORPORATION
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1883421
--------------------------------- -------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
250 Cotorro Court, Las Cruces, New Mexico 88005
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(Address of principal Executive Offices)
(505) 524-4050
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(3) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
The number of common shares outstanding as of April 2, 1996 was 2,529,049
Transitional Small Business Disclosure Form (Check one): Yes No X
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PATLEX CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1996
and June 30, 1995 ..................................... 3
Statements of Earnings for the Nine Months and Three Months
Ended March 31, 1996 and 1995 ......................... 4
Statements of Cash Flows for the Periods Ended
March 31, 1996 and 1995 ............................... 5
Statements of Stockholders Equity ............................. 6
Notes to Financial Statements ................................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS .......................... 8
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ........................... 10
ITEM 2. CHANGES IN SECURITIES ....................... 11
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES ............................. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY-HOLDERS .................... 11
ITEM 5. OTHER INFORMATION ........................... 11
ITEM 6. EXHIBITS AND REPORTS ON
FORM 8-K ............................... 11
SIGNATURES ................................................................ 12
</TABLE>
2
<PAGE> 3
PATLEX CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
--------- -------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,280 $ 3,703
Accounts and notes receivable, net of allowance for
doubtful accounts of $200 167 916
Prepaid expenses 118 25
------- -------
Total current assets 6,565 4,644
Property and equipment, net 381 391
Investment in patents, less accumulated amortization 14,438 15,771
------- -------
Total assets $21,384 $20,806
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses and
other current liabilities $ 639 $ 369
Current portion of long-term debt 27 1,044
Due to other laser patents interest holders 1,470 1,612
Income taxes payable 626 237
------- -------
Total current liabilities 2,762 3,262
Note payable to bank 224 243
Deferred income taxes 3,839 4,172
------- -------
Total liabilities 6,825 7,677
------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value. Authorized 1,000,000
shares; no shares issued or outstanding -- --
Common stock, $.10 par value. Authorized
10,000,000 shares; issued and outstanding,
2,527,049 shares at March 31 1996 and
1,000 shares at June 30, 1995 253 --
Capital in excess of par vlaue 12,876 13,129
Retained earnings 1,430 --
------- -------
Total stockholders' equity 14,559 13,129
------- -------
Total liabilities and stockholders' equity $21,384 $20,806
======= =======
</TABLE>
See accompanying notes
3
<PAGE> 4
PATLEX CORPORATION
STATEMENT OF EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
---------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Laser patents royalties $ 1,810 $ 1,454 $ 5,473 $ 4,352
------- ------- ------- -------
Costs and expenses:
General and administrative 554 266 1,409 745
Amortization of patents 444 444 1,333 1,498
Depreciation 7 7 18 17
------- ------- ------- -------
Total costs and expenses 1,005 717 2,760 2,260
------- ------- ------- -------
Operating income 805 737 2,713 2,092
------- ------- ------- -------
Other income (deductions):
Interest income 82 31 205 94
Interest expense (28) (52) (86) (153)
Other, net 4 4 11 13
------- ------- ------- -------
Total other income (deductions), net 58 (17) 130 (46)
------- ------- ------- -------
Earnings before income taxes 863 720 2,843 2,046
Provision for income taxes (465) (315) (1,413) (903)
------- ------- ------- -------
Net earnings $ 398 $ 405 $ 1,430 $ 1,143
======= ======= ======= =======
Net earnings per common share $ 0.14 $ 0.16 $ 0.69 $ 0.45
======= ======= ======= =======
Weighted average number of common
shares and common shares equivalents
outstanding (In Thousands) 2,908 2,524 2,062 2,524
======= ======= ======= =======
</TABLE>
See accompanying notes
4
<PAGE> 5
PATLEX CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings from operations $ 1,430 $ 1,143
Adjustments to reconcile net earnings to net cash
proviced by operations:
Depreciation 18 17
Amortization 1,333 1,498
Note discount 14 27
Change in operating assets and liabilities:
Decrease in receivables, net of decrease in due
to other laser patents interest holders 607 1,542
Increase in prepaid expenses (93) 40
Increase in all other current liabilities 270 20
Increase in income taxes payable 389 38
Decrease in deferred income taxes (333) (378)
------- -------
Net cash provided by operating activities 3,635 3,947
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (8) (12)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (1,050) (1,050)
Dividends paid to parent corporation ------ (2,500)
------- -------
Net cash used in financing activities (1,050) (3,550)
------- -------
Net increase in cash 2,577 385
Cash, beginning of period 3,703 1,700
------- -------
Cash, end of period $ 6,280 $ 2,085
======= =======
Supplemental cash flow information:
Interest paid $ 74 $ 163
======= =======
Income taxes paid $ 1,362 $ 1,190
======= =======
</TABLE>
See accompanying notes
5
<PAGE> 6
PATLEX CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 1994 and 1995 and nine months ended March 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Capital
----------------------- In excess of Retained
Shares Amount Par Value Earnings Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 1,000 $ ------ $ 13,929 $ ------ 13,929
Net earnings ------ ------ ------ 1,700 1,700
Dividends paid ------ ------ (800) (1,700) (2,500)
--------- --------- --------- --------- ---------
Balance, June 30, 1995 1,000 $ ------ $ 13,129 $ ------ 13,129
Common stock distributed
in connection with
spin-off 2,523,388 $ 252 (252) ------ ------
Exercise of stock options 2,661 1 (1) ------ --------
Net earnings ------ ------ ------ 1,430 1,430
--------- --------- --------- --------- ---------
Balance, Mar. 31, 1996 2,527,049 $ 253 $ 12,876 $ 1,430 $ 14,559
========= ========= ========= ========= =========
</TABLE>
See accompanying notes
6
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PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
PART I FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying interim financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented. Such adjustments consist solely of
normal recurring accruals. Results for the interim periods are not necessarily
indicative of results for a full year.
On September 27, 1995, AutoFinance Group, Inc., a California
corporation ("AFG"), as the then sole shareholder of Patlex Corporation (the
"Company"), effected the distribution (the "Distribution") of 95.01% of the
outstanding shares of the Company's Common Stock, par value $.10 per share (the
"Common Stock"), to the holders of shares of common stock, no par value, of
AFG. On September 27, 1995, AFG merged with and into Key Auto Inc. ("Key
Auto"), an Ohio corporation and a wholly owned subsidiary of KeyCorp. Key Auto,
as the successor to AFG, retained the 4.99% of the outstanding shares of the
Company's Common Stock which were not distributed in the Distribution. As a
consequence of the Distribution, the Company is an independent, public company.
On February 7, 1996, the Company entered into a definitive merger
agreement to acquire Database Technologies, Inc. of Pompano Beach, Florida
("DBT"). The merger is intended to be a tax-free reorganization in which the
shareholders of DBT would receive a number of shares of Patlex Common Stock
equal to 67% of the number of common shares in addition to one-half the number
of Patlex options outstanding following the merger. Based on the current number
of Patlex shares and options outstanding, DBT shareholders would hold
approximately 66.8% of the shares outstanding after the merger. Database
Technologies specializes in providing on-line access to data for law
enforcement, insurance and other investigative industries. Consummation of the
transaction is conditioned on, among other things, receipt of the necessary
shareholder and regulatory approvals and filings with the Securities and
Exchange Commission.
7
<PAGE> 8
PART I FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. DIVIDENDS
During the nine month period ending March 31, 1995, dividends totaling
$2,500,000 or $2,500 per share were declared and paid to AFG. No dividends were
declared or paid during the nine month period ended March 31, 1996.
NOTE 3. NET EARNINGS PER SHARE
Net earnings per share of common stock for the current year periods
presented is computed by dividing net income for the period by the weighted
average number of common shares outstanding during the period plus common stock
equivalent shares issuable upon exercise of stock options using the treasury
stock method. Pro forma net earnings per share for prior year periods presented
is computed by giving effect to the number of shares of the Company's common
stock which would have been outstanding had the distribution occurred one year
earlier with no change in the number of shares outstanding occurring since that
date.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LASER LICENSING ACTIVITY
The Company has agreements with companies which represent a
cross-section of the laser industry, including users and manufacturers. Under
these agreements, approximately 142 licensees are paying royalties on a
quarterly basis to the Company. The Company believes the majority of the
commercial laser manufacturers making, using or selling infringing lasers in the
United States have been licensed.
CHANGE IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of March 31, 1996, the Company had $6,280,000 in cash and cash
equivalents as compared to $3,703,000 at June 30, 1995, an increase of
$2,577,000.
Net working capital increased to $3,803,000 as of March 31, 1996 from
$1,382,000 as of June 30, 1995. Total assets increased by $578,000 from
$20,806,000 to $21,384,000. Total liabilities decreased by $852,000 from
$7,677,000 to $6,825,000 due primarily to the payment of short term debt.
QUARTER ENDED MARCH 31, 1996 COMPARED TO THE QUARTER ENDED MARCH 31, 1995
Revenues from laser patent royalties increased to $1,810,000 from
$1,454,000, an increase of $356,000 or 24% for the quarter ended March 31, 1996
as compared to the quarter ended March 31, 1995 The increase is primarily
attributable to higher royalty revenues reported by several industrial laser
manufacturers and the signing of a new licensee in the quarter, including
approximately $89,000 for past infringement.
8
<PAGE> 9
PART I FINANCIAL STATEMENTS (CONTINUED)
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
QUARTER ENDED MARCH 31, 1996 COMPARED TO THE QUARTER ENDED MARCH 31, 1995
(CONTINUED)
General and Administrative expenses for the quarter ended March 31,
1996 increased to $554,000 from $266,000 for the quarter ended March 31, 1995,
an increase of $288,000. The increase is primarily due to costs associated with
the proposed DBT Merger as described herein (see Part I, Note 1 to Financial
Statements).
Net earnings for the quarter ended March 31, 1996 were $398,000 as
compared to $405,000 for the corresponding quarter of the previous year, a
decrease of $7,000 or 2%. The decrease in earnings is primarily attributable to
expenses related to the DBT Merger in the amount of approximately $219,000. The
provision for income taxes increased to $465,000 from $315,000 due to the
non-deductibility of expenses for tax purposes for costs associated with the
proposed DBT Merger and higher pretax earnings.
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
1995
Revenues from laser patent royalties increased to $5,473,000 from
$4,352,000, an increase of $1,121,000 or 26% for the nine months ended March 31,
1996 as compared to the nine months ended March 31, 1995. The increase is
attributable to higher royalty revenues reported by the laser industry as a
whole and the signing of three new licensees, which accounted for approximately
$600,000 of the increase.
General and Administrative expenses for the nine months ended March 31,
1996 increased to $1,409,000 from $745,000 for the nine months ended March 31,
1995, an increase of $664,000. The increase is primarily due to costs associated
with the proposed DBT Merger as described herein (see Part I, Note 1 to
Financial Statements) and spin-off costs associated with the AFG/KeyCorp
transaction. These two non-recurring expenses totaled $527,000.
Net earnings for the nine months ended March 31, 1996 were $1,430,000
as compared to $1,143,000 for the corresponding nine month period of the
previous year, an increase of $287,000 or 25%. The increase is primarily
attributable to higher royalties, as discussed above and a decrease of the
patent amortization expense in the amount of $165,000, which is attributed to
the expiration of the Optically Pumped Laser Patent in October 1994. The
provision for income taxes increased to $1,413,000 from $903,000 or $510,000 due
to higher pretax earnings and the non-deductibility of expenses associated with
the proposed merger.
9
<PAGE> 10
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Due to the nature of the Company's business, especially its
involvement in the enforcement of patent rights, the Company is frequently
involved in litigation with alleged infringers of the Laser Patents. The
Company regards all such lawsuits as occurring in the ordinary course of
business. Furthermore, as a result of the involvement of the United States
Patent and Trademark Office in granting and denying patent applications and in
conducting re-examinations of patents, the Company has in the past been
required to prosecute appeals of United States Patent and Trademark Office
rulings adverse to the Company's interest to the United States District Court.
No such appeals are pending at this time and the Company does not anticipate
such appeals will be necessary in the future with regard to the Laser Patents.
In connection with suits filed against alleged patent infringers to enforce a
patent, defendants often file counterclaims seeking payment by the plaintiffs
of any damages suffered by the defendants on account of the lawsuit and
reimbursement by the plaintiffs of the defendant's costs and attorney's fees.
While such counterclaims have been filed against the Company, to date the
Company has not incurred liability with regard to such counterclaims. The
Company may also be required to file suits to enforce collection and compliance
under its patent license agreements with its current licensees.
In July 1989, the Company instituted a civil action in the United
States District Court, District of New Jersey, against JEC Lasers, Inc. ("JEC
Lasers"). JEC Lasers was granted a license containing terms more favorable than
terms in licenses granted by the Company to other licensees. The Company's
complaint requested the court to declare the license agreement to be
non-transferable, based on JEC Lasers' historical financial condition and
insolvency, and enjoin the licensee from transferring the license agreement to
another laser manufacturer. A trial was held in April 1994. The court ruled
that JEC Lasers is not barred from transferring the license agreement as part
of a business combination. A judgment embodying the court's ruling was entered
in August 1994 which the Company appealed. The Court of Appeals affirmed the
lower court's ruling.
In November 1994, REFAC Financial Corporation ("REFAC") instituted a
civil action in the United States District Court, Eastern District of
Pennsylvania, alleging that Patlex improperly calculated the royalties due
REFAC. The manner in which the royalty due REFAC are calculated has been
consistent for more than six years. Patlex believes that the royalties due REFAC
have been properly calculated and the REFAC's claim is both without merit and
10
<PAGE> 11
PATLEX CORPORATION
PART II OTHER INFORMATION (CONTINUED)
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
time-barred. On February 28, 1996, a special verdict adverse to Patlex was
returned. No judgment has been entered on the verdict and Patlex's motion for
judgment as a matter of law is pending. The amount of any judgment against
Patlex in this action will be less than $225,000. Patlex intends to appeal any
adverse judgment.
ITEM 2. CHANGES IN SECURITIES
In connection with the KeyCorp/AFG Merger and the Distribution of the
Company's Common Stock, AFG shareholders of record on September 27, 1995 were
entitled to receive one share of Patlex Common Stock for every eight shares of
the AFG Common Stock owned on such date. As a result of the Distribution, 95.01%
of the Company's Common Stock was distributed to AFG shareholders and 4.99% was
retained by Key Auto as the surviving corporation in the merger. The effective
date of the Distribution was September 27, 1995. As of April 2, 1996, a total of
2,529,049 common shares of Patlex Common Stock were outstanding.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None to report.
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated March 27, 1996
11
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PATLEX CORPORATION
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PATLEX CORPORATION
(Registrant)
Date: May 14, 1996 By: /s/ Frank Borman
--------------- ------------------
Frank Borman
Chairman and CEO
Date: May 14, 1996 By: /s/ Richard Laitinen
--------------- ----------------------
Richard Laitinen
Treasurer and CFO
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 6,280
<SECURITIES> 0
<RECEIVABLES> 367
<ALLOWANCES> 200
<INVENTORY> 0
<CURRENT-ASSETS> 6,565
<PP&E> 480
<DEPRECIATION> 99
<TOTAL-ASSETS> 21,384
<CURRENT-LIABILITIES> 2,762
<BONDS> 0
0
0
<COMMON> 253
<OTHER-SE> 14,306
<TOTAL-LIABILITY-AND-EQUITY> 21,384
<SALES> 5,473
<TOTAL-REVENUES> 5,473
<CGS> 2,760
<TOTAL-COSTS> 2,760
<OTHER-EXPENSES> (216)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 2,843
<INCOME-TAX> 1,413
<INCOME-CONTINUING> 1,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,430
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
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