-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WqURp6QN0r+e1rOzyotakdLnFGfFZtJuaBGbED8JJ73JcpVwpSmcuNJL3ZIxxnJo W7rtbq2oRVSRGzm/o+yK7A== 0000704914-96-000005.txt : 19961113 0000704914-96-000005.hdr.sgml : 19961113 ACCESSION NUMBER: 0000704914-96-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATAKEY INC CENTRAL INDEX KEY: 0000704914 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 411291472 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-11447 FILM NUMBER: 96659174 BUSINESS ADDRESS: STREET 1: 407 W TRAVELERS TRAIL CITY: BURNSVILLE STATE: MN ZIP: 55337 BUSINESS PHONE: 6128906850 MAIL ADDRESS: STREET 1: 407 WEST TRAVELERS TRAIL CITY: BURNSVILLE STATE: MN ZIP: 55337 10QSB 1 FORM 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 1996 Commission File Number 0-11447 DATAKEY, INC. (Exact name of small business issuer as specified in its charter) MINNESOTA 41-1291472 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 407 WEST TRAVELERS TRAIL, BURNSVILLE, MN 55337 Issuer's telephone number: (612) 890-6850 - ------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) 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 / / APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of the issuer's common equity, as of November 12, 1996, is 2,880,403. Transitional Small Business Disclosure Format (check one): Yes / / No /x/ 1 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
September 28, December 31, 1996 1995 ---------------------------------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $550,117 $713,230 Investment in held-to-maturity securities 6,268,448 6,253,984 Trade receivables, less allowance for doubtful accounts of $9,970 and $34,300 1,144,259 1,055,075 Inventories 932,084 1,222,938 Prepaid and other 53,397 52,177 Deferred taxes 109,000 109,000 Refundable income taxes 0 46,642 ------------------------------ Total current assets 9,057,304 9,453,046 ============================== INTANGIBLES Patent and license at cost, less amortization of $162,565 and $118,702 145,730 158,264 Non-compete agreement, less amortization of $165,000 and $123,750 0 41,250 ------------------------------ 145,730 199,514 ============================== DEFERRED TAXES 106,600 0 ------------------------------ EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost Production tooling 1,192,599 1,109,524 Equipment 2,489,322 2,358,938 Furniture and fixtures 267,482 211,822 Leasehold improvements 234,452 211,761 ------------------------------ 4,183,855 3,892,045 Less accumulated depreciation (2,708,163) (2,366,660) ------------------------------ 1,475,692 1,525,385 ------------------------------ $10,785,326 $11,177,945 ============================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $419,953 $509,683 Accrued expenses 446,404 298,672 ------------------------------ Total current liabilities 866,357 808,355 ------------------------------ DEFERRED TAXES 0 158,000 ------------------------------ SHAREHOLDERS' EQUITY Convertible preferred stock, voting, stated value $2.50 per share; authorized 400,000 shares; issued and outstanding 150,000 375,000 375,000 Common stock, par value $.05 per share; authorized 10,000,000 shares; outstanding 2,880,403 and 2,835,236 144,020 141,762 Additional paid-in capital 4,064,859 3,885,887 Retained earnings 5,335,090 5,808,941 ------------------------------ 9,918,969 10,211,590 ------------------------------ $10,785,326 $11,177,945 ==============================
See Notes to Consolidated Financial Statements 2 DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 28 September 30, September 28 September 30, 1996 1995 1996 1995 --------------------------------------------------------------- Net Sales $1,758,999 $1,771,510 $5,400,871 $5,375,884 Cost of goods sold 1,166,843 1,209,219 3,408,019 3,606,434 --------------------------------------------------------------- Gross Profit 592,156 562,291 1,992,852 1,769,450 Other operating revenue 6,813 6,511 12,781 16,788 --------------------------------------------------------------- Total gross profit and other operating revenue 598,969 568,802 2,005,633 1,786,238 --------------------------------------------------------------- Operating expenses: Research, development and engineering 613,980 180,220 1,413,988 520,284 Selling 324,571 283,279 947,137 866,677 General and administrative 214,990 166,029 657,918 495,637 --------------------------------------------------------------- Total operating expenses 1,153,541 629,528 3,019,043 1,882,598 --------------------------------------------------------------- Operating loss (554,572) (60,726) (1,013,410) (96,360) Interest income 89,546 97,099 274,958 284,525 --------------------------------------------------------------- Income(loss) before income taxes (465,026) 36,373 (738,452) 188,165 Income tax expense(benefit) (167,000) 12,000 (264,600) 64,400 --------------------------------------------------------------- Net income(loss) ($298,026) $24,373 ($473,852) $123,765 =============================================================== Net income(loss) per common and common equivalent share (Primary and fully diluted) ($0.10) $0.01 ($0.17) $0.04 =============================================================== Weighted average number of common and common equivalent shares outstanding 2,880,403 2,986,690 2,854,707 2,981,516 ===============================================================
See Notes to Consolidated Financial Statements 3 DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended Nine Months Ended September 28 September 30, September 28, September 30, 1996 1995 1996 1995 -------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income(loss) ($298,026) $24,373 ($473,852) $123,765 Adjustments to reconcile net income(loss) to net cash provided by(used in) operating activities: Depreciation 115,973 123,923 341,503 360,332 Amortization 15,320 42,760 85,113 109,264 Change in assets and liabilities (Increase) decrease: Trade receivables 107,706 (219,836) (89,184) (24,709) Inventories 225,995 (104,276) 290,854 (16,298) Prepaid expenses and other 30,477 22,149 (1,220) (20,165) Refundable income taxes 0 0 46,642 101,680 Increase (decrease) in: Accounts payable (116,950) 129,588 (89,730) (199,982) Accrued expenses 74,186 38,937 147,732 70,122 Income taxes payable 0 11,630 0 53,727 Deferred taxes (167,500) 0 (264,600) 0 ---------------------------------------------------------------- Net cash provided by(used in) operating activities (12,819) 69,248 (6,742) 557,736 ----------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of tooling and equipment (32,030) (33,727) (291,810) (190,271) Purchase of held-to-maturity securities (2,751,368) (3,299,267) (5,343,464) (5,762,070) Proceeds from maturity of held-to-maturity securities 2,060,000 2,410,000 5,329,000 5,710,000 Patent and license costs (904) (11,207) (31,327) (46,166) ----------------------------------------------------------------- Net cash provided by investing activities (724,302) (934,201) (337,601) (288,507) ----------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on non-compete 0 0 0 (82,500) obligation Net proceeds from issuance of common stock 14,500 0 181,230 0 ---------------------------------------------------------------- Net cash provided by (used in) 14,500 0 181,230 (82,500) ----------------------------------------------------------------- Increase(decrease) in cash and cash equivalents (722,621) (864,953) (163,113) 186,729 CASH AND CASH EQUIVALENTS Beginning 1,272,738 1,306,721 713,230 255,039 ----------------------------------------------------------------- Ending $550,117 $441,768 $550,117 $441,768 =================================================================
See Notes to Consolidated Financial Statements 4 DATAKEY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GENERAL In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly Datakey's financial position as of September 28, 1996 and December 31, 1995 and results of its operations and cash flows for the three- month and nine-month periods ended September 28, 1996 and September 30, 1995. The adjustments that have been made are of a normal recurring nature. The accounting policies followed by the Company are set forth in Note 1 to the Company's financial statements in the 1995 Datakey, Inc. Annual Report and in Form 10-KSB for the year ended December 31, 1995. INVESTMENT IN HELD-TO-MATURITY SECURITIES The Company held marketable debt securities with an amortized cost of $6,268,448 as of September 28, 1996. As it is the intention of the Company to hold these securities to maturity, they are accounted for as "Held-to-Maturity Securities" as defined in FASB Statement No. 115. The market value of these U.S. Treasury Bill securities is $6,267,623. The unrealized loss, therefore, is $825. All of the Securities have a maturity date of less than twelve months. The Company has no marketable debt securities which are classified as Available-For-Sale Securities or Trading Securities. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION DATAKEY, INC. AND SUBSIDIARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS REVENUE - Net sales for the three-month and nine-month periods ended September 28, 1996, decreased by $12,511 and increased by $24,987, respectively, from the comparable periods of 1995. Commercial sales increased by $61,276, or 1%, in the three-month period, and decreased $35,318, or 1%, in the nine-month period ended September 28, 1996, as compared to the same periods in 1995. Commercial sales were 92% of total sales for the three-month period and 86% of total sales for the nine-month period, as compared to 88% and 87% in the comparable 1995 periods. The Company anticipates that government sales will remain stable for the balance of 1996 and that commercial sales in 1996 will be less than the commercial sales in 1995. Revenue in the fourth quarter of 1996 and for the year will be lower than the comparable 1995 periods due to a general softness in business from our major customers. GROSS PROFIT MARGINS - Gross profit as a percentage of net sales increased to 34% and 37% in the three-month and nine-month periods ended September 28, 1996, from 32% and 33% in the comparable 1995 periods. The increased gross profit margin is primarily due to increased unit prices for standard products in excess of the unit costs and improved manufacturing efficiencies. Gross profit margins for the balance of 1996 are expected to exceed the levels attained in 1995. OPERATING EXPENSES - Operating expenses increased by $524,013 and $1,136,445, or 83% and 60%, in the three-month and nine-month periods ended September 28, 1996, as compared to the same periods in 1995. The increased expenses are primarily attributable to a substantial increase, as planned, in research and development and marketing expenses necessary to expedite the market introduction of sophisticated electronic token-based systems targeted at the rapidly emerging corporate information security marketplace. 6 INTEREST INCOME - Interest income during the three-month and nine-month periods ended September 28, 1996, decreased $7,553 and $9,567, or 8% and 3%, from the comparable periods in 1995. The lower level of interest income is primarily due to a reduction in the market interest rate on earnings from the Company's investment in held-to-maturity securities. Interest income for the balance of 1996 is likely to be lower than comparable 1995 periods as a result of continuation of the lower rate of interest and a declining balance in held-to-maturity securities, as the Company will be investing the proceeds of some of these securities as they mature to fund its investment in new product development. FINANCIAL CONDITION - During the nine-month period ended September 28, 1996, the Company had a net decrease in cash and cash equivalents of $163,113, compared to a net increase of $186,729 in the comparable 1995 period. The decrease in cash and equivalents during the nine-month period ended September 28, 1996 was primarily due to the significant increase in spending on new product development and marketing expense which also has resulted in a loss for the three-month and nine-month periods. Cash, cash equivalents and investment in held-to-maturity securities were $6,818,565 at September 28, 1996. The Company anticipates that its current working capital position of $8,190,947 and internally generated cash flow will be sufficient to fund its planned operations and investment in new product development for the foreseeable future. OUTLOOK FOR 1996 - The Company expects to report a significant loss in 1996 due to a substantial increase in expenditures on product development and promotion. CAUTIONARY STATEMENTS The discussion and analysis section involves risks and uncertainties, including those described under the heading "Cautionary Statements" included in Part I of the Company's Form 10-KSB for the year ended December 31, 1995. 7 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits Exhibit 11 Computation of Per Share Earnings Exhibit 27 Financial Data Schedule (only filed with electronic copy) (b) The Company was not required to and did not file a Form 8-K during the quarter ended September 28, 1996. 8 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) 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. Dated November 12, 1996 DATAKEY, INC. BY: /s/ John H. Underwood John H. Underwood President & Chief Executive Officer (Principal Executive Officer) BY: /s/ Alan G. Shuler Alan G. Shuler Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) 9 DATAKEY, INC. EXHIBIT INDEX TO FORM 10-QSB FOR QUARTER ENDED SEPTEMBER 28, 1996 EXHIBIT NO. DESCRIPTION ------------ --------------------------------- 11 Computation of Per Share Earnings 27 Financial Data Schedule EX-11 2 COMPUTATION RE: EARNINGS PER SHARE EXHIBIT 11 DATAKEY, INC. AND SUBSIDIARY COMPUTATION RE: EARNINGS PER SHARE (UNAUDITED)
Three Months Ended Nine Months Ended September 28 September 30, September 28, September 30, 1996 1995 1996 1995 ---------------------------------------------------------------- Net Income(loss) ($298,026) $24,373 ($473,852) $123,765 ============================================================================================================= Primary Earnings Per Share Shares: Weighted average number of common shares outstanding 2,880,403 2,829,570 2,854,707 2,829,570 Assuming conversion of preferred 0 150,000 0 150,000 Assuming exercise of options and warrants reduced by the number of shares which could have been purchased with the proceeds from exercise of such options and warrants (treasury stock method) using average market price 0 7,120 0 1,946 - ------------------------------------------------------------------------------------------------------------- Weighted average number of common and common equivalent shares outstanding 2,880,403 2,986,690 2,854,707 2,981,516 ============================================================================================================= Primary Earnings Per share ($0.10) $0.01 ($0.17) $0.04 ============================================================================================================= Fully Diluted Earnings Per Share Shares: Weighted average number of common 2,880,403 2,829,570 2,880,403 2,829,570 shares outstanding Assuming conversion of preferred 0 150,000 0 150,000 Assuming exercise of options and warrants reduced by the number of shares which could have been purchased with the proceeds from exercise of such options and warrants (treasury stock method) using ending market price 0 8,172 0 8,172 - ------------------------------------------------------------------------------------------------------------- Weighted average number of common and common equivalent shares outstanding 2,880,403 2,987,742 2,854,707 2,987,742 ============================================================================================================= Fully Diluted Earnings Per Share ($0.10) $0.01 ($0.17) $0.04 =============================================================================================================
EX-27 3 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 9-MOS DEC-31-1996 SEP-28-1996 1 550,117 6,268,448 1,154,229 9,970 932,084 9,057,304 4,183,855 2,708,163 10,785,326 866,357 0 0 375,000 144,020 9,399,949 10,785,326 1,758,999 1,765,812 1,166,843 1,166,843 1,153,541 0 0 (465,026) (167,000) (298,026) 0 0 0 (298,026) (.10) (.10)
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