-----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, Cv3FA9LUW3IvyJYWQhPwj+0XFpfbMxDpNHnyRaRDet/azGE5OgFCGXWS5AZ2z3/Y JyolECfaXhAD9g1s4eAVow== /in/edgar/work/20000811/0000897101-00-000797/0000897101-00-000797.txt : 20000921 0000897101-00-000797.hdr.sgml : 20000921 ACCESSION NUMBER: 0000897101-00-000797 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGITAL BIOMETRICS INC CENTRAL INDEX KEY: 0000868373 STANDARD INDUSTRIAL CLASSIFICATION: [3577 ] IRS NUMBER: 411545069 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72031 FILM NUMBER: 694289 BUSINESS ADDRESS: STREET 1: 5600 ROWLAND RD CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 6129320888 MAIL ADDRESS: STREET 1: 5600 ROWLAND RD STREET 2: 5600 ROWLAND RD CITY: MINNETONKA STATE: MN ZIP: 55343 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 -------------------------------------------------- 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) (952) 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 July 31, 2000 - 16,819,225 shares ---------------------------- --------------------------------- (Class) (Outstanding) 1 DIGITAL BIOMETRICS, INC. THREE MONTHS ENDED JUNE 30, 2000 INDEX PART I - FINANCIAL INFORMATION: PAGE ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED BALANCE SHEETS 4 CONSOLIDATED STATEMENTS OF OPERATIONS 5 CONSOLIDATED STATEMENTS OF CASH FLOWS 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17 PART II - OTHER INFORMATION: ITEM 1. LEGAL PROCEEDINGS 17 ITEM 2. CHANGES IN SECURITIES 17 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 ITEM 5. OTHER INFORMATION 17 ITEM 6. (a) EXHIBITS 17 (b) REPORTS ON FORM 8-K 17 SIGNATURES 18 - ---------- 2 DIGITAL BIOMETRICS, INC. THREE MONTHS ENDED JUNE 30, 2000 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for the historical information contained herein, the matters discussed in this Form 10-Q include forward-looking statements made within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. As provided for under the Private Securities Litigation Reform Act, the Company cautions investors that actual results of future operations may differ from those anticipated in forward-looking statements due to a number of factors, including the Company's ability to maintain profitability, introduce new products and services, build profitable revenue streams around new product and service offerings, maintain loyalty and continued purchasing of the Company's products by existing customers, execute on customer delivery and installation schedules, collect outstanding accounts receivable and manage the concentration of accounts receivable and other credit risks associated with selling products and services to governmental entities and other large customers, create and maintain satisfactory distribution and operations relationships with automated fingerprint identification system ("AFIS") vendors, attract and retain key employees, secure timely and cost-effective availability of product components, meet increased competition, maintain adequate working capital and liquidity, including the availability of financing as may be required, and upgrade products and develop new technologies. For a more complete description of such factors, see "Risk Factors" under Item 7 of the Company's Form 10-K report for the year ended September 30, 1999. 3 DIGITAL BIOMETRICS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, September 30, 2000 1999 ------------- ------------- Current assets: Cash and cash equivalents $ 4,072,717 $ 3,175,868 Accounts receivable, less allowance for doubtful accounts of $112,000 and $128,587, respectively 4,785,843 7,415,334 Inventory (note 4) 4,419,663 2,972,998 Prepaid expenses and other costs 297,822 195,887 ------------- ------------- Total current assets 13,576,045 13,760,087 ------------- ------------- Property and equipment 3,103,033 2,744,454 Less accumulated depreciation and amortization (2,158,794) (1,783,030) ------------- ------------- 944,239 961,424 ------------- ------------- Other assets 40,361 25,270 ------------- ------------- $ 14,560,645 $ 14,746,781 ============= ============= Current liabilities: Accounts payable $ 692,138 $ 1,826,451 Deferred revenue 3,355,246 2,319,828 Other accrued expenses (note 6) 1,534,016 3,171,707 Current installments of capital lease obligations -- 57,292 ------------- ------------- Total current liabilities 5,581,400 7,375,278 Capital lease obligations, less current installments -- 93,077 Convertible debentures -- 148,097 ------------- ------------- Total liabilities 5,581,400 7,616,452 ------------- ------------- Stockholders' equity (note 7): Preferred stock, undesignated, par value $.01 per share, 5,000,000 shares authorized, none issued -- -- Common stock, $.01 par value. Authorized, 40,000,000 shares; issued and outstanding 16,819,225 and 16,017,629 shares, respectively 168,192 160,176 Additional paid-in capital 48,665,336 47,157,996 Deferred compensation (109,125) (75,500) Accumulated deficit (39,745,158) (40,112,343) ------------- ------------- Total stockholders' equity 8,979,245 7,130,329 ------------- ------------- $ 14,560,645 $ 14,746,781 ============= =============
See accompanying notes to consolidated financial statements. 4 DIGITAL BIOMETRICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATION (UNAUDITED)
Three Months Ended Nine Months Ended June 30, June 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenues: Identification systems $ 2,598,414 $ 5,312,409 $ 11,997,673 $ 10,900,850 Maintenance 1,303,031 951,914 3,489,032 2,663,347 Integral Partners, Inc. -- -- -- 258,720 ------------ ------------ ------------ ------------ Total revenues 3,901,445 6,264,323 15,486,705 13,822,917 ------------ ------------ ------------ ------------ Cost of revenues: Identification systems 1,209,175 3,250,108 7,000,525 6,829,253 Maintenance 932,693 787,704 2,555,327 2,120,575 Integral Partners, Inc. -- -- -- 142,767 ------------ ------------ ------------ ------------ Total cost of revenues 2,141,868 4,037,812 9,555,852 9,092,595 ------------ ------------ ------------ ------------ Gross margin 1,759,577 2,226,511 5,930,853 4,730,322 ------------ ------------ ------------ ------------ Selling, general and administrative expenses: Sales and marketing 618,605 564,501 1,757,956 1,453,096 Engineering and development 1,025,065 534,961 2,112,567 1,677,728 General and administrative 585,363 652,047 1,865,184 2,027,499 ------------ ------------ ------------ ------------ Total expenses 2,229,033 1,751,509 5,735,707 5,158,323 ------------ ------------ ------------ ------------ Income (loss) from operations (469,456) 475,002 195,146 (428,001) ------------ ------------ ------------ ------------ Other income (expense): Interest income 69,921 3,923 176,374 16,730 Interest expense (274) (45,382) (6,383) (257,749) Other income (expense) (400) (10,207) 2,048 (10,207) ------------ ------------ ------------ ------------ Total other income (expense) 69,247 (51,666) 172,039 (251,226) ------------ ------------ ------------ ------------ Net income (loss) $ (400,209) $ 423,336 $ 367,185 $ (679,227) ============ ============ ============ ============ Net income (loss) per common share $ (0.02) $ 0.03 $ 0.02 $ (0.05) ============ ============ ============ ============ Net income (loss) per common share - assuming dilution $ (0.02) $ 0.03 $ 0.02 $ (0.05) ============ ============ ============ ============ Weighted average common shares outstanding 16,815,201 15,130,682 16,515,855 14,559,270 ============ ============ ============ ============ Weighted average common shares outstanding - assuming dilution 16,815,201 15,243,357 18,022,140 14,559,270 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 5 DIGITAL BIOMETRICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended June 30, ----------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net income (loss) $ 367,185 $ (679,227) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for doubtful accounts receivable (16,587) 4,801 Deferred compensation amortization 42,875 43,500 Depreciation and amortization 488,115 446,181 Write-off of intangible assets -- 14,694 (Gain) loss on disposal of fixed assets (2,048) 10,207 Interest expense amortization for the intrinsic value of the beneficial conversion feature of convertible debentures -- 125,000 Interest expense on debentures converted into common stock 12,350 24,581 Changes in operating assets and liabilities: Accounts receivable 2,646,078 (1,651,657) Inventories (1,446,665) 361,945 Prepaid expenses (101,936) 11,558 Accounts payable (1,134,313) (675,621) Deferred revenue 1,035,418 223,779 Accrued expenses (1,482,930) 591,545 ------------ ------------ Net cash provided by (used in) operating activities 407,542 (1,148,714) ------------ ------------ Cash flows from investing activities: Purchase of property and equipment (459,548) (266,075) Proceeds from disposal of property and equipment 12,794 700 Patents, trademarks, copyrights and licenses (29,683) (5,773) ------------ ------------ Net cash used in investing activities (476,437) (271,148) ------------ ------------ Cash flows from financing activities: Issuance of convertible debentures, net -- 450,111 Principal payments on capital lease obligations (150,369) (43,761) Private placement of common stock -- 889,877 Exercise of options and warrants 1,116,113 -- Net line of credit advances -- 428,406 ------------ ------------ Net cash provided by financing activities 965,744 1,724,633 ------------ ------------ Increase in cash and cash equivalents 896,849 304,771 Cash and cash equivalents at beginning of period 3,175,868 840,616 ------------ ------------ Cash and cash equivalents at end of period $ 4,072,717 $ 1,145,387 ============ ============
See accompanying notes to consolidated financial statements. 6 DIGITAL BIOMETRICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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, 1999. The consolidated financial statements include the accounts of Digital Biometrics, Inc. and its wholly owned subsidiary Integral Partners, Inc. All significant intercompany balances and transactions have been eliminated on consolidation. The Company generally recognizes product sales on the date of shipment for orders which are f.o.b. origin and upon delivery for f.o.b. destination. Revenue for professional services contracts and systems integration services revenues are recognized using the percentage of completion method, completed contract basis or on a time-and-materials basis. Revenues from maintenance and repair contracts are recognized over the period of the agreement. Services revenues are recognized when the related services are performed. 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 may, however, be subject to negotiation and may affect the Company's timing and criteria for revenue recognition. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 which provides the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. The Company will be required to adopt the new standard beginning with the fourth quarter of fiscal 2001. The impact of adoption on the Company's financial statements has not yet been determined. (2) SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK The Company extends credit to substantially all of its customers. Approximately 96% and 94%, respectively, of customer accounts receivable at June 30, 2000 and September 30, 1999 were from government agencies. At September 30, 1999 53% of accounts receivable from government agencies were from two customers. Revenues from one customer in the three-month period ended June 30, 2000 accounted for 17% of total revenues, and revenues from three customers in the three-month period ended June 30, 1999 accounted for 24%, 16% and 14% of total revenues. Revenues from two customers in the nine-month period ended June 30, 2000 accounted for 19% and 13% of total revenues, and revenues from two customers in the nine-month period ended June 30, 1999 accounted for 28% and 10% of total revenues. Export revenues for the three-month period ended June 30, 2000 were less than 1% of total revenues compared to 5% of total revenues for the same period in 1999. Export revenues for the nine-month period ended June 30, 1999 were less than 1% of total revenues as compared to 3% for the same period in 1999. (3) STATEMENT OF CASH FLOWS For purposes of the statements 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. 7 DIGITAL BIOMETRICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Nine Months Ended June 30, 2000 1999 ---------- ----------- Cash paid during the period for interest $4,672 $51,525 ========== =========== SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS: In October 1999, the Company issued 116,369 shares of common stock for the conversion of the final remaining principal aggregating $150,000 plus $12,252 of accrued interest at an average conversion price of $1.39 per share. (4) INVENTORY Inventory is valued at standard cost which approximates the lower of first-in, first-out (FIFO) cost or market. Inventory consists of the following: June 30, September 30, 2000 1999 ------------ ------------ Components and subassemblies $3,074,400 $2,307,600 Work in process 474,897 434,714 Finished goods 870,366 230,684 ------------ ------------ $4,419,663 $2,972,998 ============ ============ (5) LINE OF CREDIT Effective January 1, 2000, the Company established an inventory and receivables financing line of credit for the lesser of eligible inventory and receivables or $2,000,000 with Associated Bank Minnesota, formerly named Riverside Bank. Borrowings under this line of credit are secured by all the assets of the Company. This line of credit replaced the Company's previous line of credit agreement. The line bears interest at a rate of 0.5% (one half percent) above the prime rate. The line will expire in November 2000. There were no borrowings under this line at June 30, 2000. (6) OTHER ACCRUED EXPENSES Other accrued expenses consists of: June 30, September 30, 2000 1999 ------------ ------------- Accrued salaries, bonuses and commissions $ 279,504 $ 773,106 Accrued vacation 301,174 195,757 Accrued warranty 241,965 745,104 Accrued installation costs 412,500 1,107,200 Other accrued expenses 298,873 350,540 ------------ ------------- $ 1,534,016 $ 3,171,707 ============ ============= 8 DIGITAL BIOMETRICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) (7) STOCKHOLDERS' EQUITY During the three-month period ended June 30, 2000, the Company granted stock option awards to executive and non-executive employees for the purchase of an aggregate of 651,500 shares of common stock. These options are exercisable at prices from $3.5625 to $4.50 per share and expire in 2007. (8) NET INCOME (LOSS) PER COMMON SHARE The per share computations are based on the weighted average number of common shares outstanding during the periods.
Three Months Ended Nine Months Ended June 30, June 30, ----------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Shares outstanding at beginning of period 16,806,726 15,130,682 16,017,629 13,661,832 Shares issued under retirement plan -- -- 45,855 87,897 Restricted stock awards, net of forfeitures -- -- 10,269 43,200 Shares issued for private placements -- -- -- 694,996 Exercise of options and warrants 12,499 -- 629,103 -- Shares issued upon conversion of debentures -- -- 116,369 642,757 ------------ ------------ ------------ ------------ Shares outstanding at end of period 16,819,225 15,130,682 16,819,225 15,130,682 ============ ============ ============ ============ Weighted average common shares outstanding 16,815,201 15,130,682 16,515,855 14,559,270 Dilutive common shares assumes: Options -- 51,753 1,045,151 -- Warrants -- 60,922 461,134 -- ------------ ------------ ------------ ------------ Weighted average common shares outstanding - assuming dilution 16,815,201 15,243,357 18,022,140 14,559,270 ============ ============ ============ ============ Net income (loss) $ (400,209) $ 423,336 $ 367,185 $ (679,227) ============ ============ ============ ============ Net income (loss) per common share $ (0.02) $ 0.03 $ 0.02 $ (0.05) ============ ============ ============ ============ Net income (loss) per common share - assuming dilution $ (0.02) $ 0.03 $ 0.02 $ (0.05) ============ ============ ============ ============
9 DIGITAL BIOMETRICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) The following is a summary of those securities outstanding at June 30 for the respective periods, which have been excluded from the calculations because the effect on net income (loss) per common share would not have been dilutive:
For the Three-Month Period For the Nine-Month Period Ended June 30, Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 --------------------------- ------------------------- Options 2,513,809 1,746,100 103,500 1,982,600 Warrants 697,910 1,070,334 112,893 1,370,389 Convertible debentures -- 760,064 -- 760,064
10 DIGITAL BIOMETRICS, INC. THREE MONTHS ENDED JUNE 30, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL As more fully described in the subsection "Risk Factors" under Item 7 of the Company's Form 10-K report for the year ended September 30, 1999, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements regarding intent, belief or current expectations of the Company and its management and are made in reliance upon the "safe harbor" provisions of the Securities Litigation Reform Act of 1995. Stockholders and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. Digital Biometrics, Inc., (the "Company," "Digital Biometrics" or "DBI") is a leading provider of identification information systems that employ "biometric" technology, which is the science of identifying individuals by measuring distinguishing biological characteristics. DBI's biometric identification systems and information technology services enable law enforcement and other government agencies to identify and manage information about individuals, and help commercial employers and government agencies to conduct background checks on applicants for employment, citizenship, permits and the like. DBI's offerings include computer-based fingerprinting and photographic systems, software tools, multi-media data storage and communications servers, and the systems integration and software development services required to implement identification management systems. Under new management since 1997, Digital Biometrics has evolved from essentially a single-product live-scan hardware supplier to an identification information systems company. DBI continues to expand its product line and information technology services to further penetrate the law enforcement market, while introducing new products and services for the emerging applicant-processing and security markets among commercial and government customers. Typical customers include: U.S. government agencies, such as the Immigration and Naturalization Service (INS) and the U.S. Postal Service; local and state police; the military; school districts; financial institutions; utilities; and casinos. The Company's main products are special-purpose, computer-based systems for "live-scan" fingerprint capture, data transmission and receipt of return information. These live-scan systems employ patented, high-resolution optics and specialized hardware and software, combined with industry-standard computer hardware and software, to create highly optimized, special-purpose systems which capture, digitize, print and transmit forensic-grade fingerprint and photographic images along with text, and receive information back. The Company's strategy is to continue to market live-scan systems to law enforcement agencies and to expand its product and service offerings and the markets it serves. The law enforcement market for live-scan biometric products is well established. The Company believes 11 DIGITAL BIOMETRICS, INC. THREE MONTHS ENDED JUNE 30, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS there is growing demand from other governmental and commercial markets to employ identification information technologies in enrollment and applicant processing applications. Digital Biometrics is aggressively pursuing these emerging markets. Also, the Company is engaged in a joint venture with Lakes Gaming, Inc., formerly known as Grand Casinos, Inc., named TRAK 21 Development, LLC, to develop, test and market an automated wagering tracking system based on technology developed by the Company. This system is intended to track the betting activity of casino patrons playing blackjack. A majority of the Company's revenues in the three and nine-month periods ended June 30, 2000 and 1999 were derived from live-scan systems sales, photographic image capture systems, maintenance and applications development services to governmental customers. The Company's sales have historically included large purchases by a relatively small number of customers. This concentration of sales among few relatively large customers is expected to continue in the foreseeable future. The law enforcement market and government procurement processes are subject to budgetary, economic and political considerations which vary significantly from state to state and among different agencies. These characteristics, together with the increasing level of competition within the live-scan electronic fingerprint industry, have resulted (and are expected to continue to result) in an irregular revenue cycle for the Company. The quarter-to-quarter fluctuations in the Company's revenues and earnings will continue to be difficult to predict. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 Total revenues were $3,901,000 for the three months ended June 30, 2000 compared to $6,264,000 for the same prior-year period. Identification systems revenues were $2,598,000 compared to $5,312,000 in the same prior-year period. This 51% decrease is due primarily to a decrease in the number of live-scan systems sold during the three months ended June 30, 2000, partially offset by an increase in the average selling price per live-scan system, and an increase in revenues for custom software services. Maintenance revenues were $1,303,000 for the three months ended June 30, 2000 compared to $952,000 for the same prior-year period, an increase of 37%. This increase is due primarily to a larger installed base of live-scan systems covered by maintenance agreements. Revenues from one customer in the three-month period ended June 30, 2000 accounted for 17% of total revenues, and revenues from three customers in the three-month period ended June 30, 1999 accounted for 24%, 16% and 14% of total revenues. Export revenues for the three-month period ended June 30, 2000 were less than 1% of total revenues compared to 5% of total revenues for the same period in 1999. 12 DIGITAL BIOMETRICS, INC. THREE MONTHS ENDED JUNE 30, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overall gross margins for the three months ended June 30, 2000 were 45%, as compared to 36% of revenues for the same prior-year period. Gross margins on identification systems revenues were 53% for the three months ended June 30, 2000 compared to 39% in the same prior-year period. This increase is due mainly to lower per-unit installation and training costs attributable to a favorable geographic concentration of installations, a $276,000 reduction in accrued installation costs applicable to a favorable change in an equipment installation obligation, improved per-unit warranty costs, and a favorable product mix. Gross margins on identification systems revenues for future periods are expected to approximate historical margins. Maintenance margins for the three months ended June 30, 2000 and 1999 were 28% and 17%, respectively. The increase in product maintenance and support margins is due primarily to accrued costs in the prior-year period to implement Year 2000 compliant software for customers with maintenance contracts. Sales and marketing expenses for the three-month period ended June 30, 2000 were 16% of total revenues compared to 9% for the same three-month prior-year period. The increase in sales and marketing costs as a percentage of total revenue is due primarily to the decrease in revenue. The increase in absolute dollars of sales and marketing expenses for the current-year three-month period is due primarily to an increase in new product promotional activities. Engineering and development expenses were 26% of total revenues for the three-month period ended June 30, 2000 compared to 9% for the same period a year ago. This increase is due primarily to decreased revenues and increased new product development costs, partially offset by an increase in engineering resources used for cost of sales activity. Engineering expenses for the three-month periods ending June 30, 2000 and 1999 are net of $128,000 and $166,000, respectively, of costs related to a Federally funded demonstration project grant. General and administrative expenses for the three-month periods ended June 30, 2000 and 1999 were 15% and 10%, respectively, of total revenues. This increase is due primarily to decreased revenues. The decrease in absolute dollars of general and administrative expenses for the current-year three-month period is due primarily to a decrease in bonus accruals. Interest income increased to $70,000 for the three months ended June 30, 2000 from $4,000 for the same period in fiscal 1999 due to higher cash balances. Interest expense decreased to less than $1,000 for the three months ended June 30, 2000 from $45,000 for the same prior-year period. The decrease is primarily due to conversion of convertible debentures and no borrowings on a line of credit during the current-year period. The Company generated net loss for the three-month period ended June 30, 2000 of $400,000, or $0.02 per share loss, as compared to a net income of $423,000, or $0.03 per share, for the same prior-year period. NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30, 1999 Total revenues were $15,487,000 for the nine months ended June 30, 2000 compared to $13,823,000 for the same prior-year period. Identification systems revenues were $11,998,000 compared to $10,901,000 in the same prior-year period. This 10% increase is due primarily to an 13 DIGITAL BIOMETRICS, INC. THREE MONTHS ENDED JUNE 30, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS increase in the number of live-scan systems sold during the nine months ended June 30, 2000, an increase in revenues from new product offerings including photographic imaging systems and palm scanning systems, and an increase in revenues from customized software services, partially offset by a decrease in the average selling price per live-scan system. Maintenance revenues were $3,489,000 for the nine months ended June 30, 2000 compared to $2,663,000 for the same prior-year period, an increase of 31%. This increase is due primarily to a larger installed base of live-scan systems covered by maintenance agreements. There were no revenues generated by the Company's wholly owned subsidiary Integral Partners, Inc. for the nine months ended June 30, 2000 compared to $259,000 for the same prior-year period. Revenues from two customers in the nine-month period ended June 30, 2000 accounted for 19% and 13%, respectively, of total revenues. Revenues from two customers in the same prior-year period accounted for 28% and 10% of total revenues. Export revenues for the nine-month period ended June 30, 2000 were less than 1% of total revenues compared to 3% of total revenues in the same prior-year period. Overall gross margins for the nine months ended June 30, 2000 were 38%, as compared to 34% of revenues for the same prior-year period. Gross margins on identification systems revenues were 42% for the nine months ended June 30, 2000 compared to 37% in the same prior-year period. This increase is due primarily to lower production, installation, training and warranty costs per system and a favorable product mix, partially offset by lower average selling prices. Maintenance margins for the nine months ended June 30, 2000 and 1999 were 27% and 20%, respectively. The increase in maintenance margins is due primarily to accrued costs in the prior-year period to implement Year 2000 compliant software for customers with maintenance contracts. There was no gross margin generated by Integral Partners, Inc. for the nine months ended June 30, 2000 compared to 45% gross margin for the same prior-year period. Sales and marketing expenses for the nine-month period ended June 30, 2000 and 1999 were 11% of total revenues. The increase in absolute dollars of sales and marketing expenses for the current-year nine-month period is due primarily to an increase in personnel-related costs and new product promotional activities. Engineering and development expenses were 14% of total revenues for the nine-month period ended June 30, 2000 compared to 12% for the same period a year ago. The increase is due primarily to an increase in new product development costs, partially offset by a decrease in engineering expenses associated with Integral Partners, Inc. and an increase in engineering resources used for cost of sales activity. Engineering expenses for the nine-month periods ending June 30, 2000 and 1999 are net of $363,000 and $243,000, respectively, of costs related to a Federally funded demonstration project grant. General and administrative expenses for the nine-month periods ended June 30, 2000 and 1999 were 12% and 15%, respectively, of total revenues. The decrease is due primarily to the increase in revenues, a decrease in legal fees incurred 14 DIGITAL BIOMETRICS, INC. THREE MONTHS ENDED JUNE 30, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in connection with legal action taken by a competitor against one of the Company's customers in an unsuccessful effort to prevent the Company's contract with the customer from proceeding forward and a decrease in personnel-related costs associated with Integral Partners, Inc. These were partially offset by an increase in other general administrative expenses. Interest income increased to $176,000 for the nine months ended June 30, 2000 from $17,000 for the same period in fiscal 1999 due to higher cash balances. Interest expense decreased to $6,000 for the nine months ended June 30, 2000 from $258,000 for the same prior-year period. The decrease is primarily due to a $125,000 non-cash charge during the prior-year nine-month period for the intrinsic value of the beneficial conversion feature of convertible debentures, conversion of convertible debentures and no borrowings on the line of credit during the current-year period. The Company generated net income for the nine-month period ended June 30, 2000 of $367,000, or $0.02 per share, as compared to a net loss of $679,000, or $0.05 per share loss, for the same prior-year period. INFLATION The Company does not believe inflation has significantly affected revenues or expenses. NET OPERATING LOSS CARRYFORWARDS At June 30, 2000, the Company had carryforwards of net operating losses of approximately $35,600,000 that may allow the Company to reduce future income taxes that would otherwise be payable. Of this amount approximately $2,730,000 relates to compensation associated with the exercise of non-qualified stock options which, when realized, would result in approximately $1,092,000 credited to additional paid-in capital. The carryforwards expire annually beginning in 2003. The Company's net operating loss carryforwards that are subject to limitation on use pursuant to the Internal Revenue Code Section 382 due to prior ownership changes. 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 published U.S. Internal Revenue Service long-term federal tax exempt rate. Future ownership change could create a limitation with respect to these loss carryforwards. 15 DIGITAL BIOMETRICS, INC. THREE MONTHS ENDED JUNE 30, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES GENERAL Effective January 1, 2000, the Company established an inventory and receivables financing line of credit for the lesser of eligible inventory and receivables or $2,000,000 with Associated Bank Minnesota, formerly named Riverside Bank. Borrowings under this line of credit are secured by all the assets of the Company. The line bears interest at a rate of 0.5% (one half percent) above the prime rate. The line will expire in November 2000. This line of credit replaced the Company's previously outstanding line of credit. There were no borrowings under this line of credit at June 30, 2000. For the period from the Company's inception in 1985 through June 30, 2000, the Company's cumulative deficit was $39,745,000. The Company generated its first net income during fiscal 1999. At June 30, 2000, the Company had $4,073,000 in cash and cash equivalents. Historically, the Company has been reliant on the availability of outside capital to sustain its operations. Management believes that cash, cash equivalents, and other working capital provided from operations, together with the available line of credit, are sufficient to meet current and foreseeable operating requirements of the Company's current business. Additional capital may be required if the Company seeks to expand into new business areas. ANALYSIS OF CASH FLOWS FROM OPERATIONS Net cash provided by operating activities was $408,000 for the nine months ended June 30, 2000 compared to $1,149,000 of net cash used in the same prior-year period. This favorable cash flow impact resulted primarily from the net income generated during the current-year period, an increase in deferred maintenance revenue and a reduced balance of accounts receivable, partially offset by decreases in installation and warranty accruals, a reduced balance of accounts payable and an increase in inventory during the current-year period. Net cash used in investing activities was $476,000 for the nine months ended June 30, 2000 compared to $271,000 of cash used in investing activities the same prior-year period. The increase was due primarily to purchases of computer equipment to support the customer service organization and investments in marketing demonstration equipment. Net cash provided by financing activities was $966,000 for the nine-month period ended June 30, 2000 compared to $1,725,000 during the same prior-year period. Cash from financing activities was provided primarily from stock option exercises during the current-year period and from private placements of common stock and the issuance of convertible debentures during the prior-year period. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's market risks since September 30, 1999. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no material lawsuits pending or, to the Company's knowledge, threatened against the Company. ITEM 2. CHANGES IN SECURITIES (a) Not applicable. (b) Not applicable. (c) Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES No changes since September 30, 1999 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. (a) EXHIBITS Exhibit 27 Financial Data Schedule. (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed by the Company during the three-month period ended June 30, 2000. 17 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) August 11, 2000 /s/ John J. Metil ----------------- John J. Metil Executive Vice President, Chief Operating Officer and Chief Financial Officer 18 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 0000868373 DIGITAL BIOMETRICS INC 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 4,072,717 0 4,897,843 112,000 4,419,663 13,576,045 3,103,033 2,158,794 14,560,645 5,581,400 0 0 0 168,192 8,811,053 14,560,645 11,997,673 15,486,705 7,000,525 9,555,852 5,735,707 0 6,383 367,185 0 367,185 0 0 0 367,185 0.02 0.02
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