UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1995
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: 0-18856
DIGITAL BIOMETRICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1545069
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5600 Rowland Road, Minnetonka, Minnesota 55343
(Address of principal executive offices) (Zip Code)
(612) 932-0888
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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 filing requirements
for the past 90 days. [x] Yes [ ] No
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date.
Common Stock, $.01 par value January 31, 1996 - 8,476,611 shares
(Class) (Outstanding)
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED DECEMBER 31, 1995
INDEX
PART I - FINANCIAL INFORMATION:
PAGE
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
BALANCE SHEETS 3
STATEMENTS OF OPERATIONS 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND 13
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 6. (a) EXHIBITS 18
(b) REPORTS ON FORM 8-K 18
SIGNATURES 19
EXHIBIT 11 STATEMENT RE: COMPUTATION OF LOSS 20
PER SHARE
EXHIBIT 27 FINANCIAL DATA SCHEDULE 21
TENPRINTER(R) and the Company's mechanical hand logo have been registered as
trademarks with the U.S. Patent and Trademark Office. The Company has applied
for registration of the SQUID(TM) trademark. In addition, FC-5(TM), FC-6(TM),
FC-7(TM), FC-11(TM), FC-21(TM) and FC-22(TM) are trademarks of the Company.
<TABLE>
<CAPTION>
DIGITAL BIOMETRICS, INC.
BALANCE SHEETS
(UNAUDITED)
December 31, September 30,
1995 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 2) $ 7,551,709 $ 367,866
Receivable from issuance of convertible debentures (note 7) -- 10,109,750
Accounts receivable, less allowance for doubtful accounts of $146,000
and $111,000, respectively 5,227,902 4,494,301
Inventories (note 4) 1,894,747 1,875,682
Prepaid expenses and other costs 258,961 144,925
------------ ------------
Total current assets 14,933,319 16,992,524
------------ ------------
Property and equipment 1,809,087 1,639,319
Less accumulated depreciation and amortization (816,015) (745,602)
------------ ------------
993,072 893,717
------------ ------------
Marketable securities (notes 2 and 3) 5,873,284 5,780,707
Patents, trademarks, copyrights and licenses, net of accumulated
amortization of $685,618 and $610,282, respectively 879,203 934,468
Deferred issuance costs on convertible debentures, net of accumulated
amortization of $70,854 and $0, respectively (note 7) 779,396 850,250
------------ ------------
$ 23,458,274 $ 25,451,666
============ ============
Current liabilities:
Accounts payable $ 728,384 $ 461,331
Line of credit advances (note 5) -- 1,450,000
Deferred revenue 437,596 542,758
Accrued expenses 952,293 1,044,745
------------ ------------
Total current liabilities 2,118,273 3,498,834
Convertible debentures (notes 7 and 11) 9,746,515 8,863,578
------------ ------------
Total liabilities 11,864,788 12,362,412
------------ ------------
Stockholders' equity (note 6):
Common stock, $.01 par value. Authorized, 20,000,000 shares; issued
and outstanding 8,221,445 and 7,833,633 shares, respectively 82,214 78,336
Additional paid-in capital 32,533,638 31,061,754
Unrealized losses on marketable securities (notes 2 and 3) (82,843) (176,477)
Deferred compensation (168,513) (216,684)
Notes receivable from sale of common stock (297,173) (297,173)
Accumulated deficit (20,473,837) (17,360,502)
------------ ------------
Total stockholders' equity 11,593,486 13,089,254
Commitments (note 9)
------------ ------------
$ 23,458,274 $ 25,451,666
============ ============
See accompanying notes to financial statements.
</TABLE>
DIGITAL BIOMETRICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31,
1995 1994
----------- -----------
Sales:
Identification systems $ 2,168,871 $ 2,074,022
Maintenance and other services 350,223 264,935
----------- -----------
Total sales 2,519,094 2,338,957
----------- -----------
Cost of sales:
Identification systems 987,944 1,028,583
Maintenance and other services 424,234 309,193
----------- -----------
Total cost of sales 1,412,178 1,337,776
----------- -----------
Gross margin 1,106,916 1,001,181
----------- -----------
Selling, general and administrative expenses:
Sales and marketing 629,676 495,427
Engineering and development 939,874 484,198
Depreciation and amortization 138,659 125,663
General and administrative 482,783 339,948
----------- -----------
Total expenses 2,190,992 1,445,236
----------- -----------
Loss from operations (1,084,076) (444,055)
Interest income 202,400 97,439
Interest expense (note 11) (2,231,658) (1,951)
----------- -----------
Net loss $(3,113,334) $ (348,567)
=========== ===========
Loss per common share $ (0.39) $ (0.04)
=========== ===========
Weighted average common shares outstanding 7,891,840 7,785,555
=========== ===========
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
DIGITAL BIOMETRICS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
December 31,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,113,334) $ (348,567)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for doubtful accounts receivable 35,000 9,000
Deferred compensation amortization 48,171 51,672
Depreciation and amortization 149,633 130,309
Loss on disposal of fixed assets 7,360 --
Interest expense amortization for the
intrinsic value of the beneficial
conversion feature of convertible
debentures 1,923,529 --
Interest expense on convertible debentures
converted into common stock 298,263 --
Changes in operating assets and liabilities:
Accounts receivable (768,600) 286,667
Inventories (19,065) 272,037
Prepaid expenses (114,037) 18,264
Accounts payable 267,054 65,800
Deferred revenue (105,162) (10,118)
Accrued expenses (199,693) 89,645
------------ ------------
Net cash provided by (used in) operating activities (1,590,881) 564,709
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (179,955) (175,232)
Patents, trademarks, copyrights and licenses (20,071) (10,084)
------------ ------------
Net cash used in investing activities (200,026) (185,316)
------------ ------------
Cash flows from financing activities:
Exercise of warrants 315,000 --
Issuance of convertible debentures 10,109,750 --
Payments on line of credit (1,450,000) --
------------ ------------
Net cash provided by financing activities 8,974,750 --
------------ ------------
Increase in cash and cash equivalents 7,183,843 379,393
Cash and cash equivalents at beginning of period 367,866 592,971
------------ ------------
Cash and cash equivalents at end of period $ 7,551,709 $ 972,364
============ ============
See accompanying notes to financial statements.
</TABLE>
DIGITAL BIOMETRICS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Digital Biometrics, Inc., (the Company) was incorporated in Minnesota
in May, 1985 and reincorporated in Delaware in December, 1986. The Company is a
developer, manufacturer and marketer of identification products based on
electro-optical imaging technologies. The Company's principal product, the
TENPRINTER(R) system is a computer-based, inkless "live-scan" fingerprint system
that electronically reads a fingerprint and creates a digital image, which can
then either be printed on an attached printer or transmitted electronically to a
central printing or storage site. The TENPRINTER system is designed for use by,
and is being actively marketed to, law enforcement agencies and other
organizations requiring a high resolution fingerprint image for identification
cards or similar applications.
The Company's performance in any one quarter is not necessarily
indicative of sales trends or future performance. The nature of the law
enforcement market and the government procurement process are expected to
continue to produce an irregular and unpredictable revenue cycle for the
Company.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. For further
information, refer to financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended September 30, 1995.
(2) ACCOUNTING POLICIES
INVENTORY
Inventory is valued at standard cost which approximates the lower of
first-in, first-out (FIFO) cost or market.
MARKETABLE SECURITIES
Marketable securities consist primarily of collateralized mortgage
backed securities (see note 3). Net realized and unrealized gains and losses are
determined on the specific identification cost basis. Unrealized gains and
losses are reflected as a separate component of stockholders' equity. Realized
losses on sales of marketable securities are reported as a reduction in interest
income. There were no realized losses on sales of marketable securities for the
three-month periods ended December 31, 1995 or 1994.
PROPERTY AND EQUIPMENT
Furniture and equipment are recorded at cost. Depreciation and
amortization are computed on a straight-line basis over the estimated useful
lives, generally 3 to 5 years. Leasehold improvements are amortized over the
estimated useful life of the asset or lease term whichever is shorter.
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
Costs associated with patents, trademarks and copyrights are
capitalized and amortized over sixty months or the remaining life of the patent,
trademark or copyright, whichever is shorter. The cost of software licenses
related to purchased software are capitalized and amortized over thirty-six
months or the life of the license, whichever is shorter. Management periodically
assesses the amortization period and recoverability of the carrying amount of
intangible assets based upon an estimation of their value and future benefits of
the recorded asset. Management has concluded that the carrying amount of the
intangible assets is realizable.
WARRANTY COSTS
Estimated product warranty costs are accrued at date of shipment.
Accrued warranty costs at December 31, 1995 were $60,000 compared with $58,000
at September 30, 1995.
REVENUE AND REVENUE RECOGNITION
The Company's identification system sales include the delivery of
integrated hardware and software. Revenues from system sales are generally
recognized on the date of shipment. The Company's standard terms of sale are
payment due net in thirty days, f.o.b. Digital Biometrics, Inc. Terms of sale
and shipment for certain procurements by municipal or other government agencies
may, however, be subject to negotiation. In cases where the Company is required
to purchase a performance bond or to deposit collateral in accordance with the
terms of a contract, the Company's policy is to defer revenues under such
contracts until the amount shipped exceeds the amount of the performance
collateral or until the security is released by the bonding company. Maintenance
revenues are recognized over the life of the contract on a straight-line basis.
Maintenance costs are expensed as incurred.
The Company's performance for any period is not necessarily indicative
of sales trends or future performance. The nature of the law enforcement market
and the government procurement process are expected to continue to produce an
irregular and unpredictable revenue cycle for the Company. For the three-month
period ended December 31, 1995, sales to two customers accounted for 40% and 10%
of sales. Sales to three customers during the three-month period ended December
31, 1994 accounted for 28%, 17%, and 11% of period sales. Export sales were 39%
for the three-month period ended December 31, 1995 and 4% for the same period in
1994.
ENGINEERING AND DEVELOPMENT ARRANGEMENTS
Engineering and development costs are expensed as incurred. Engineering
and development expenses for the three-month periods ended December 31, 1995 and
1994 are net of reimbursements of $462,000 and $337,000, respectively, from a
company with which there is a teaming agreement on an international development
project.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments and certificates of deposit purchased with an
original maturity date of three months or less to be cash equivalents. Cash
equivalents include primarily U.S. Government money market funds and A-1, P-1
rated commercial paper.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Three Months Ended
December 31,
1995 1994
---------- ----------
Cash paid during the period for interest $9,866 $1,951
========== ==========
For supplemental disclosure of non-cash investing and financing
activities see notes 7 and 8.
NET LOSS PER COMMON SHARE
Net loss per common share is determined by dividing the net loss by the
weighted average number of shares of common stock and dilutive common share
equivalents outstanding. Common share equivalents have been excluded from the
computation of net loss per share as their effect is anti-dilutive.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the financial statement
carrying amount and tax basis of assets and liabilities.
(3) MARKETABLE SECURITIES
Investments in marketable securities have maturities ranging from 2005
to 2016.The unrealized loss for available-for-sale marketable securities is as
follows.
December 31, September 30,
1995 1995
-------------- --------------
Fair market value $5,873,284 $5,780,707
Amortized cost 5,956,127 5,957,184
-------------- --------------
Unrealized loss $ (82,843) $ (176,477)
============== ==============
(4) INVENTORIES
Inventory is valued at standard which approximates the lower of
first-in, first-out (FIFO) cost or market. Inventories consist of the following.
December 31, September 30,
1995 1995
-------------- --------------
Raw materials $1,405,990 $1,187,955
Work in process 124,479 197,947
Finished goods 364,278 489,780
-------------- --------------
$1,894,747 $1,875,682
============== ==============
(5) LINE OF CREDIT
The Company has a $200,000 line of credit with First Bank Minneapolis,
secured by cash deposits. Borrowings under the line bear interest at the prime
rate (8.5% on December 31, 1995), is payable upon demand and expires in March
1996. There were no amounts borrowed under the line at December 31, 1995.
The Company has a $4,000,000 line of credit with Norwest Bank Minnesota
N.A. Borrowings under this line of credit are secured by marketable securities
and are limited to the amount of marketable securities held as collateral by the
bank. Borrowings under the line bear interest at the prime rate (8.5% on
December 31, 1995), is payable upon demand and expires in May 1996. There were
no amounts borrowed under the line at December 31, 1995.
(6) ACCRUED EXPENSES
Accrued expenses consist of:
December 31, September 30,
1995 1995
------------ --------------
Salaries $ 72,953 $ 127,281
Vacation 103,885 105,734
Interest 204,712 2,799
Payroll taxes 224,448 500,000
Sales taxes 29,916 34,818
Warranty 60,300 58,100
Other 256,079 216,013
------------ --------------
$952,293 $1,044,745
============ ==============
(7) CONVERTIBLE DEBENTURES
On September 29, 1995, the Company completed a private placement to
offshore accredited investors of $10,900,000 of 8% Convertible Debentures due
September 29, 1998 (the "Debentures"). Net proceeds to the Company after
placement fees but before legal and other expenses were $10,109,750. The
Debentures are convertible one third after 45 days, one third after 75 days and
one third after 105 days at the option of the Debenture holder. The Company has
the right to redeem the debentures prior to conversion. The conversion price is
equal to the lesser of $7.00 per common share or 85% of the average trading
price for any five consecutive trading days before conversion. This beneficial
conversion feature has an intrinsic value of $1,924,000 which has been recorded
as a charge to interest expense. The intrinsic value of the beneficial
conversion feature is to be allocated to additional paid-in capital with the
resulting discount on the debt resulting in a non-cash interest expense charge
to earnings (loss) over the conversion period. Interest accrued on the
Debentures is payable in common stock at the time of conversion at the
conversion price as described above. In addition to the cash placement fee, a
warrant to purchase 112,893 shares of the Company's common stock at $8.40 per
share was granted to the placement agent for this offering. The warrant was
valued at $112,893, which is reflected as a discount on the Debentures and is
being amortized as interest expense over the term of the Debentures. Net
proceeds to the Company will be used for working capital, product development
and other general corporate purposes.
As of December 31, 1995, the Company issued 213,481 shares of common
stock for the conversion of $1,050,000 of the 8% Convertible Debentures.
(8) STOCKHOLDERS' EQUITY
Effective December 31, 1995, the Company issued 16,831 shares of common
stock to satisfy the Company's discretionary matching to employees electing
participation in the Company's 401(k) retirement plan. This issuance increased
common stock and additional paid-in capital by $94,674 and resulted in
compensation expense of the same amount.
(9) LEASE COMMITMENTS
The Company leases its primary office and production facility under an
operating lease that expires in October, 1997. Annual base rent under the lease
agreement is approximately $280,000, including a pro rata share for property
taxes, maintenance and other operating expenses. The Company leases a separate
sales and service office in Los Angeles, California under an operating lease
that expires in August, 1996 and a sales office in Washington, D.C. on a
year-to-year lease arrangement. Rent expense for the three months ended December
31, 1995 and 1994 was $78,000 and $82,000, respectively.
(10) LITIGATION
On June 1, 1995, the Company filed a complaint for patent infringement
against Identix, Inc., of Sunnyvale, California, in the United States District
Court for the Northern District of California. The complaint alleges that
Identix has willfully and deliberately infringed a Company patent through the
manufacture, use and/or sale of competing products. The complaint seeks, among
other things, an injunction prohibiting further infringement as well as
unspecified monetary damages. Identix has responded to the complaint alleging,
among other purported defenses, non-infringement and patent invalidity. This
lawsuit is in its preliminary stages and any specific outcome is not yet
determinable.
There are no material lawsuits pending or, to the Company's knowledge,
threatened against the Company.
(11) RESTATEMENT
On March 28, 1997, the Securities and Exchange Commission (SEC) staff
announced its position on the accounting treatment for the issuance of
convertible debt securities with beneficial conversion features such as that
contained in the Company's convertible debentures issued in September 1995. The
SEC staff's announcement requires retroactive determination using the
intrinsic-value method of the beneficial conversion feature. The intrinsic value
of the beneficial conversion feature is to be allocated to additional paid-in
capital with the resulting discount on the debt resulting in a non-cash interest
expense charge to earnings (loss) over the conversion period.
As a result of this SEC announcement, the Company is restating its results
for the three-month period ended December 31, 1995 to reflect the in-the-money
beneficial conversion feature of the convertible debentures which were issued by
the Company in September 1995. An additional charge of $1,923,529 has been
recorded in the three-month period ended December 31, 1995 for the in-the-money
beneficial conversion feature which vested during the first quarter of fiscal
1996. As a result, interest expense, net loss and net loss per share were
restated from $308,129; $1,189,805 and $0.15 to $2,231,658, $3,113,334 and
$0.39, respectively. This restatement had no effect on cash flows or total
stockholders' equity.
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED DECEMBER 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company develops, manufactures, assembles and markets
identification systems based on electro-optical imaging technologies. Most of
the Company's sales have been to state and local law enforcement agencies. To
date, the Company's sales have consisted primarily of TENPRINTER systems and
related peripheral equipment and software.
The nature of the law enforcement market and the government procurement
process is subject to budgetary, economic and political considerations which may
vary significantly from state to state and among different agencies. These
market characteristics, along with the recent and continuing development of the
live-scan electronic fingerprint industry, have resulted in and are expected to
continue to result in an irregular revenue cycle for the Company and any
prediction of future trends is inherently difficult. The Company believes,
however, that its principal product line, which is designed to be sold to law
enforcement agencies, is a leader in its marketplace. To the extent that funds
become available to such customers for procurement purposes, the Company should
benefit from the continuing development of this market.
The Company generally recognizes product sales on the date of shipment.
The Company's standard terms of sale are payment due net in 30 days, f.o.b. the
Company. Terms of sale and shipment for certain procurements by municipal or
other government agencies may, however, be subject to negotiation. In cases
where the Company is required to purchase a performance bond or to deposit
collateral in accordance with the terms of a contract, the Company's policy is
to defer recognition of revenues from such contracts until the amount shipped
exceeds the amount of the performance collateral or until the security is
released by the bonding company. Maintenance revenues are recognized over the
life of the contract on a straight-line basis. Maintenance costs are expensed as
incurred.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1994
Total sales were $2,519,000 for the three months ended December 31,
1995 compared with $2,339,000 for the same period in 1994. Identification system
product sales were $2,169,000 compared with $2,074,000 in 1994. The number of
TENPRINTER systems sold during the three months ended December 31, 1995 were 32,
compared to 31 in the prior year period. Included in the 1995 sales were
$977,000 for 12 systems sold to an international customer.
For the three-month period ended December 31, 1995, sales to two
customers accounted for approximately 40% and 10% of total sales. Sales to three
customers during the three months ended December 31, 1994 accounted for
approximately 28%, 17% and 11% of total sales.
Product maintenance and service revenues were $350,000 for the three
months ended December 31, 1995 compared with $265,000 for the same period in
1994. This increase is due primarily to a larger installed base of TENPRINTER
systems.
Overall gross margins for the three months ended December 31, 1995 were
44% as compared with 43% of sales for the same period in 1994. Gross margins on
identification system sales were 54% in 1995 compared with 50% in 1994. This
increase was due primarily to higher margins on international shipments in 1995.
Product maintenance and service margins for the three months ended
December 31, 1995 and 1994 were -21% and -17% of maintenance and support
revenues, respectively. The increased costs of product maintenance and support
are due primarily to building of base field service operations to accommodate
maintenance of TENPRINTER systems now located in 37 states.
Sales and marketing expenses for the three-month period ended December
31, 1995 were 25% of total sales compared to 21% for the same three-month period
in 1994. This increase is due primarily to international marketing efforts.
Engineering and development expenses were 37% of total sales for the three-month
period ended December 31, 1995 compared to 21% for the same period a year ago.
The 1995 increase is due primarily to new product development efforts.
Engineering and development expenses for the three-month periods ending December
31, 1995 and 1994 are net of reimbursements of $462,000 and $337,000,
respectively, related to an international development project. General and
administrative expenses for the three-month period ended December 31, 1995 were
19% of total sales compared to 15% for the same period in 1994. This increase is
due primarily to increased legal expenses related to the patent infringement
lawsuit.
Interest income increased to $202,000 for the three months ended
December 31, 1995 from $97,000 for the same period in 1994, primarily due to
cash received from the private placement of 8% convertible debentures issued on
September 29, 1995.
Interest expense increased to $2,232,000 for the three months ended
December 31, 1995 from $2,000 for the same period in 1994, primarily due to a
non-cash charge of $1,924,000 for the intrinsic value of the beneficial
conversion feature of the convertible debentures, and to a lesser extent,
accrued interest expense on the 8% convertible debentures issued on September
29, 1995.
The Company incurred a net loss for the three-month period ended
December 31, 1995 of $3,113,000 ($0.39 per share) as compared with $349,000
($0.04 per share) for the same period in 1994. The net loss for the three-month
period ended December 31, 1995 includes a non-cash interest expense charge of
$1,924,000 ($0.24 per share) for the intrinsic value of the beneficial
conversion feature of the Company's convertible debentures.
INFLATION
The Company does not believe inflation has significantly impacted
revenues or expenses.
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1995, the Company had carryforwards of net operating
losses of approximately $18,000,000 that may allow the Company to reduce future
income taxes that would otherwise be payable. Of this amount approximately
$2,200,000 relates to compensation associated with the exercise of non-qualified
stock options which, when realized, would result in approximately $880,000
credited to additional paid-in capital. The carryforwards expire annually
beginning in 1999. The annual limitation on use of net operating losses is
calculated by multiplying the value of the corporation immediately prior to the
change in ownership by the long-term federal tax exempt rate. A total of
$3,700,000 of the net operating loss carryforwards at December 31, 1995 is
subject to an annual net operating loss limitation, estimated at $350,000,
resulting from the change in control of the Company which occurred, for income
tax purposes, on December 14, 1990, the date of the Company's initial public
offering. If the limited carryforward amount for any tax year exceeds the
regular taxable income for such year, then the unused portion may generally be
carried forward to increase the annual limitation for the following year.
Utilization of net operating losses aggregating $14,300,000 which were incurred
subsequent to the change of ownership are not limited. However, any future
ownership change could create a limitation with respect to these loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
BACKGROUND
For the period from the Company's inception in 1985 through December
31, 1995, limited revenues have resulted from product sales and at December 31,
1995, the Company's cumulative deficit was $20,474,000. Losses are expected to
continue until the market development and acceptance of the technology
incorporated into the Company's products provides product sales sufficient to
cover the Company's operating expenses.
CURRENT AND FUTURE OPERATIONS
The Company's performance in any one reporting period is not
necessarily indicative of sales trends or future performance. The nature of the
law enforcement market and the government procurement process are expected to
continue to result in an irregular and unpredictable revenue cycle for the
Company.
Net cash used in operating activities was $1,591,000 for the three
months ended December 31, 1995 compared with net cash provided by operating
activities of $565,000 for the same period in 1994. This increase in cash used
in operating activities was primarily a result of a larger net loss during the
three-month period in 1995 as well as an increase in accounts receivable
balances due primarily to international shipments.
Net cash used in investing activities was $200,000 for the three months
ended December 31, 1995 as compared with $185,000 for the same period in 1994.
Capital expenditures in 1995 and 1994 were primarily for engineering and
manufacturing test fixtures. The Company's business does not require significant
amounts of cash for capital expenditures because substantial amounts of the
manufacturing and assembly processes utilized in the production of current
products are performed by outside vendors, as directed by the Company.
Specifically, the Company purchases electronics modules and standard mechanical
assemblies from manufacturers of such goods. In addition, sheet metal
components, optical components and specialized electronics modules are designed
by the Company and manufactured to the Company's specifications by outside
sources.
Net cash provided by financing activities was $8,975,000 for the three
months ended December 31, 1995, due to cash received from the issuance of 8%
convertible debentures and repayments of outstanding borrowings on lines of
credit. The Debentures include a beneficial conversion feature with an intrinsic
value of $1,924,000 which has been recorded as a charge to interest expense. The
intrinsic value of the beneficial conversion feature is to be allocated to
additional paid-in capital with the resulting discount on the debt resulting in
a non-cash interest expense charge to earnings (loss) over the conversion
period. There was no cash provided by or used in financing activities for the
three months ended December 31, 1994. There were no borrowings under lines of
credit at December 31, 1995. Historically, the Company has relied primarily on
sales of common stock to satisfy its financing requirements.
At December 31, 1995, the Company had $7,552,000 in cash and cash
equivalents and $5,873,000 in marketable securities. The unrealized loss on
marketable securities at December 31, 1995 was $83,000.
The Company has a $200,000 line of credit with First Bank Minneapolis,
secured by cash deposits. Borrowings under the line bear interest at the prime
rate (8.5% on December 31, 1995). The line is payable upon demand and expires in
March 1996. There were no amounts borrowed under the line at December 31, 1995.
The Company has a $4,000,000 line of credit with Norwest Bank Minnesota
N.A. Borrowings under this line of credit are secured by marketable securities
and are limited to the amount of marketable securities held as collateral by the
bank. Borrowings under the line bear interest at the prime rate (8.5% on
December 31, 1995). The line is payable upon demand and expires in May 1996.
There were no amounts borrowed under the line at December 31, 1995.
Management believes that cash and cash equivalents, marketable
securities and cash generated from operations, together with available financing
sources, are sufficient to meet current and foreseeable operating requirements.
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED DECEMBER 31, 1995
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 1, 1995, the Company filed a complaint for patent
infringement against Identix, Inc., of Sunnyvale, California, in
the United States District Court for the Northern District of
California. The complaint alleges that Identix has willfully and
deliberately infringed a Company patent through the manufacture,
use and/or sale of competing products. The complaint seeks, among
other things, an injunction prohibiting further infringement as
well as unspecified monetary damages. Identix has responded to the
complaint alleging, among other purported defenses,
non-infringement and patent invalidity. This lawsuit is in its
preliminary stages and any specific outcome is not yet
determinable.
There are no material lawsuits pending or, to the Company's
knowledge, threatened against the Company.
ITEM 6. (a) EXHIBITS
Exhibit 11 Statement re: Computation of loss per share
(b) REPORTS ON FORM 8-K
On October 19, 1995 the Company filed a report of Form 8-K
related to the private placement of $10,900,000 of 8% Convertible
Debentures.
DIGITAL BIOMETRICS, INC.
THREE MONTHS ENDED DECEMBER 31, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL BIOMETRICS, INC.
(Registrant)
July 11, 1997 s/ John J. Metil
---------------------------------
John J. Metil
Chief Financial Officer
EXHIBIT 11.0
DIGITAL BIOMETRICS, INC.
STATEMENT RE: COMPUTATION OF LOSS PER SHARE
The per share computations are based on the weighted average number of common
shares outstanding during the periods.
Three Months Ended
December 31,
----------------------------
1995 1994
----------- -----------
Shares outstanding at beginning of period 7,833,633 7,787,959
Shares issued under retirement plan 16,831 8,814
Exercise of warrants 157,500 --
Shares issued from debenture conversion 213,481 --
----------- -----------
Shares outstanding at end of period 8,221,445 7,794,273
=========== ===========
Weighted average shares outstanding (A) 7,891,840 7,785,555
=========== ===========
Net loss $(3,113,334) $ (348,567)
=========== ===========
Loss per common share $ (0.39) $ (0.04)
=========== ===========
(A) Stock options and other common share equivalents are not included in the
calculation of the net loss per common share for the three months ended December
31, 1995 and 1994 as their effect is antidilutive.
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<NAME> DIGITAL BIOMETRICS INC
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