-----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, UZqbEA66Uznf7BJ1Ik38DF2oeJgGyWf/E65NzNqO7/WBExjZEVdJPd3z5yp7LGE6 YxwZ+c22a6DwPKv5qdY8nA== 0000914190-96-000110.txt : 19960515 0000914190-96-000110.hdr.sgml : 19960515 ACCESSION NUMBER: 0000914190-96-000110 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960514 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: 96563044 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 under ending March 30, 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 May 10, 1996 is 2,845,737. Transitional small business disclosure Format (check one): Yes ____ No _X_ PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
March 30, 1996 (UNAUDITED) December 31, 1995 -------------- ----------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 515,133 $ 713,230 Investment in held -to- maturity securities 6,333,050 6,253,984 Trade receivables, less allowance for doubtful accounts of $10,600 and $34,300 1,118,902 1,055,075 Inventories 1,243,903 1,222,938 Prepaid and other 94,866 52,177 Deferred tax assets 109,000 109,000 Refundable income taxes 46,642 46,642 --------- ---------- Total current assets 9,461,496 9,453,046 --------- ---------- INTANGIBLES Patent and license at cost, less amortization of $132,643 and $118,702 150,394 158,264 Non-compete agreement, less amortization of $144,375 and $123,750 20,625 41,250 ----------- ---------- 171,019 199,514 ----------- ---------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost Production tools 1,146,302 1,109,524 Equipment 2,370,579 2,358,938 Furniture and fixtures 211,822 211,822 Leasehold improvements 211,761 211,761 ----------- ----------- 3,940,464 3,892,045 Less accumulated depreciation (2,477,032) (2,366,660) ----------- ------------ 1,463,432 1,525,385 ----------- ------------ $11,095,947 $11,177,945 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 445,189 $ 509,683 Accrued expenses 239,730 261,422 Income taxes payable 9,586 0 Warranty costs 13,483 37,250 ---------- --------- Total current liabilities 707,988 808,355 ---------- --------- DEFERRED TAX LIABILITY 158,000 158,000 ---------- --------- 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; issued and outstanding 2,835,736 and 2,829,570 141,787 141,762 Additional paid-in capital 3,887,674 3,885,887 Retained earnings 5,825,498 5,808,941 ----------- ---------- 10,229,959 10,211,590 ----------- ---------- $11,095,947 $11,177,945 =========== ===========
See Notes to Consolidated Financial Statements DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 30, 1996 April 1, 1995 ---------------------------------- -------------------------------- Net Sales $1,733,311 $1,908,238 Cost of goods sold 1,037,335 1,272,318 ---------------------------------- -------------------------------- Gross profit 695,976 635,920 Other operating revenue 2,406 4,350 ---------------------------------- -------------------------------- Total gross profit and other operating revenue 698,382 640,270 ---------------------------------- -------------------------------- Operating expenses: Research, development and engineering 274,576 170,197 Selling 282,256 282,314 General and administrative 208,975 154,866 ---------------------------------- -------------------------------- Total operating expenses 765,807 607,377 ---------------------------------- -------------------------------- Operating income (loss) (67,425) 32,893 Interest income 93,981 91,736 ---------------------------------- -------------------------------- Income before income taxes 26,556 124,629 Income tax expense 10,000 43,000 ---------------------------------- -------------------------------- Net income $ 16,556 $ 81,629 ================================== ================================ Net income per common and common equivalent share (Primary and fully diluted) $ 0.01 $ 0.03 ================================== ================================ Weighted average number of common and common equivalent shares outstanding 3,064,832 2,980,422 ================================== ================================
See Notes to Consolidated Financial Statements DATAKEY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 30, 1996 April 1, 1995 ---------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $16,556 $81,629 Adjustments to reconciled net income to net cash provided by (used in) operating activities: Depreciation 110,372 118,351 Amortization 34,567 30,715 Change in assets and liabilities (increase) decrease: Trade receivables (63,827) 243,697 Inventories (20,965) (50,463) Prepaid expenses and other (42,689) (44,046) Refundable income taxes 0 41,978 Increase (decrease) in: Accounts payable (64,494) (295,329) Accrued expenses (21,692) 38,069 Accrued warranty costs (23,767) 3,666 Income taxes payable 9,586 0 Deferred tax liability 0 0 --------------- ------------- Net cash used in operating activities (66,353) 168,267 --------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of tooling and equipment (48,419) (64,107) Purchase of held-to-maturity securities (1,257,066) (1,192,347) Proceeds from maturity of held-to-maturity securities 1,178,000 1,020,000 Patent and license costs (6,071) (6,927) --------------- --------------- Net cash used in investing activities (133,556) (243,381) ---------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on non-compete obligation 0 (41,250) Net proceeds from sale of common stock 1,812 0 ------------------ --------------- Net cash provided by (used in) financing activities 1,812 (41,250) ------------------ --------------- Decrease in cash and cash equivalents (198,097) (116,364) CASH AND CASH EQUIVALENTS Beginning 713,230 255,039 ----------------- --------------- Ending $515,133 $138,675 ================= ================
See Notes to Consolidated Financial Statements 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 March 30, 1996 and December 31, 1995 and results of its operations and cash flows for the three-month periods ending March 30, 1996 and April 1, 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 $6,333,050 as of March 30, 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 $6,330,926. The unrealized loss, therefore, is $2,124. 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATION DATAKEY, INC. AND SUBSIDIARY RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS REVENUE - Net sales for the three-month period ended March 30, 1996 declined $174,927 or 9% from the comparable period in 1995. Commercial sales decreased $349,992 while government sales increased $175,065 during the 1996 three-month period. The decline in commercial sales in 1996 is due to lower orders and delayed orders from some of our larger customers. Revenue for the year is expected to exceed the 1995 annual revenue of $7,200,000, but may not exceed the 1995 revenue in each of the remaining quarters. GROSS PROFIT MARGINS - Gross profit as a percentage of net sales increased to 40% in the three-month period ended March 30, 1996 compared to 33% in the comparable 1995 period. The increased margin percentage is due to improvements in manufacturing processes and a more favorable mix of higher margin products during the quarter. The Company expects the gross margin percentage for the balance of 1996 to improve compared to the 1995 margin of 33% but may not be as favorable as was achieved during the first quarter. OPERATING EXPENSES - Operating expenses increased $158,430, or 26%, in the three-month period ended March 30, 1996 as compared to the same period in 1995. This increase is due to new employees and contract services related to accelerated development of advanced data security products as well as abnormally low expenses in the 1995 period resulting from vacant positions in that period. Research and development expenses are expected to be significantly higher in 1996 as a result of the Company's decision to substantially accelerate the product development process for data security products. Although the amount of research and development spending in 1996 cannot be specified, the total is likely to be three to four times the 1995 level of $700,000. Sales and marketing expense is expected to increase by 10 to 20% in 1996, to promote and sell the advanced data security products under development. Although little revenue is expected from the sale of these products during 1996, a major product introduction is planned. General and administrative expenses in 1996 are expected to increase at approximately the rate of increase in revenue. INTEREST INCOME - Interest income during the three-month period ended March 30, 1996 increased $2,245, or 2%, from the comparable period in 1995. The higher level of interest income resulted from a higher level of investment in held-to-maturity securities and interest bearing cash and cash equivalents. Interest income is expected to trend downward during 1996 as the Company utilizes cash from maturing investments to fund the Company's investment in research and development and sales and marketing of advanced data security products. FINANCIAL CONDITION - During the three-month period ended March 30, 1996 the Company had a net decrease in cash and cash equivalents of $198,097 compared to a decrease of $116, 364 in the comparable 1995 period. Investment in held-to-maturity securities increased $79,066 in the 1996 period compared to an increase of $172,347 in the 1995 period. Cash, cash equivalents and investment in held-to-maturity securities were $6,848,183 at March 30, 1996. Datakey's balance sheet continues to reflect a strong financial position, with $8,753,508 in working capital and a current assets to current liabilities ratio of 13.4 to 1 as of March 30, 1996. The Company expects its 1996 investments in capital equipment and tooling to be approximately double its capital investments in 1995. The Company's working capital and investments are sufficient to fund its planned operations and continued research and development activities in 1996. OUTLOOK FOR 1996 - The Company expects to report a loss in 1996 due to a substantial increase in expenditures on product development and promotion. Although increased revenue and profitability is expected in the core business, this increased spending to develop and promote the data security business will likely lead to a loss for the year. CAUTIONARY STATEMENTS Certain forward looking statements in this Management's Discussion and Analysis section involve risks and uncertainties, including those described under the heading "Cautionary Statements" included in Part I of the Company's Form 10-K for fiscal year ended December 31, 1995. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K DATAKEY, INC. AND SUBSIDIARY (A) Exhibits Exhibit 11 Computation of Per Share Earnings Exhibit 27 Financial Data schedule (filed only with electronic copy) (B) The Company was not required to and did not file a Form 8-K during the quarter ended March 30, 1996. 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 May 10, 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) DATAKEY, INC. EXHIBIT INDEX TO FORM 10-QSB FOR QUARTER ENDED MARCH 30, 1996 EXHIBIT NO. DESCRIPTION 11 Computation of Per Share Earnings 27 Financial Data Schedule (filed only with electronic copy) EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 DATAKEY, INC. AND SUBSIDIARY COMPUTATION RE: EARNINGS PER SHARE (UNAUDITED)
Three Months Ended March 30, 1996 April 1, 1995 ----------------- --------------- Earnings Net Income $16,556 $81,629 Primary Earnings Per Share Shares: Weighted average number of common shares outstanding 2,835,654 2,829,570 Assuming conversion of preferred stock 150,000 150,000 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 79,178 852 Weighted average number of common and common equivalent shares outstanding 3,064,832 2,980,422 Primary Earnings Per Share $0.01 $0.03 Fully Diluted Earnings Per Share Shares: Weighted average number of common shares outstanding 2,835,654 2,829,570 Assuming conversion of preferred stock 150,000 150,000 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 63,635 1,379 Weighted average number of common and common equivalent shares outstanding 3,049,289 2,980,949 Fully Diluted Earnings Per Share $0.01 $0.03
EX-27 3 FDS -- FOR DATAKEY
5 1 U.S. Dollars 3-MOS DEC-31-1996 JAN-01-1996 MAR-30-1996 1 515,133 6,333,050 1,129,502 10,600 1,243,903 9,461,496 3,940,464 2,477,032 11,095,947 707,988 0 0 375,000 141,787 9,713,172 11,095,947 1,733,311 1,735,717 1,037,335 1,037,335 765,807 0 0 26,556 10,000 16,556 0 0 0 16,556 .01 .01
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