UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended October 1, 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 000-21559
VIISAGE TECHNOLOGY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3320515
- ---------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Porter Road, Littleton, MA 01460
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978)-952-2200
-----------------------
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 such filing
requirements for the past 90 days.
[X] Yes [_] No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 8, 2000
- --------------------------------------- ------------------------------
Common stock, $.001 par value 10,963,564
1
VIISAGE TECHNOLOGY, INC.
FORM 10-Q FOR THE QUARTER ENDED OCTOBER 1, 2000
INDEX
Page
----
Facing Sheet............................................................... 1
Index...................................................................... 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets as of October 1, 2000 and December 31, 1999...... 3
Statements of Operations for the three months and nine months
ended October 1, 2000 and September 26, 1999.................... 4
Statements of Cash Flows for the nine months
ended October 1, 2000 and September 26, 1999.................... 5
Notes to Financial Statements................................... 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
PART II - OTHER INFORMATION
Item 2 - Changes in Securities........................................... 14
Item 4 - Submission of Matters to a Vote of Security Holders............. 14
Item 5 - Other Information............................................... 14
Item 6 - Exhibits and Reports on Form 8-K................................ 14
SIGNATURES................................................................. 15
2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VIISAGE TECHNOLOGY, INC.
Balance Sheets
(in thousands)
October 1, December 31,
2000 1999
----------- ------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ - $ 441
Accounts receivable 2,740 3,264
Costs and estimated earnings in excess of billings 27,824 22,216
Other current assets 688 797
---------- ------------
Total current assets 31,252 26,718
Property and equipment, net 13,871 17,237
Other assets 542 725
---------- ------------
$ 45,665 $ 44,680
========== ============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 9,698 $ 6,621
Convertible subordinated debt 1,000 -
Current portion of long-term debt - 2,500
Obligations under capital leases 4,241 4,048
---------- ------------
Total current liabilities 14,939 13,169
Long-term debt 2,662 4,000
Convertible subordinated debt - 1,000
Obligations under capital leases 5,038 7,964
Obligations under related party capital leases 2,475 2,757
---------- ------------
25,114 28,890
Shareholders' equity 20,551 15,790
---------- ------------
$ 45,665 $ 44,680
========== ============
The accompanying notes are an integral part of these financial statements.
3
Viisage Technology, Inc.
Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
Oct. 1, Sept. 26, Oct. 1, Sept. 26,
2000 1999 2000 1999
------------- ------------- ------------- -------------
Revenues $ 8,280 $5,209 $19,766 $ 14,354
Project costs 6,679 4,136 15,009 11,714
------------- ------------- ------------- -------------
Project margin 1,601 1,073 4,757 2,640
------------- ------------- ------------- -------------
Operating expenses:
Sales and marketing 186 134 540 563
Research and development 226 86 487 252
General and administrative 601 447 1,848 1,442
------------- ------------- ------------- -------------
Total operating expenses 1,013 667 2,875 2,257
------------- ------------- ------------- -------------
Operating income 588 406 1,882 383
Interest expense 383 474 1,295 1,548
------------- ------------- ------------- -------------
Income (loss) before income taxes 205 (68) 587 ( 1,165)
Provision for income taxes - - - -
------------- ------------- ------------- -------------
Net income (loss) 205 (68) 587 (1,165)
Preferred stock dividend 32 214 210 214
------------- ------------- ------------- -------------
Net income (loss) applicable to common
shareholders $ 173 $ (282) $ 377 $ (1,379)
============= ============= ============= =============
Basic net income (loss) per share $ 0.02 $(0.03) $ 0.04 $ (0.16)
============= ============= ============= =============
Basic Shares 10,959 8,565 10,262 8,482
============= ============= ============= =============
Diluted net income (loss) per share $ 0.01 $(0.03) $ 0.03 $ (0.16)
============= ============= ============= =============
Diluted Shares 13,871 8,565 13,902 8,482
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
4
VIISAGE TECHNOLOGY, INC.
Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
----------------------------------------
October 1, September 26,
2000 1999
----------------- ----------------
Cash Flows from Operating Activities:
Net income (loss) $ 587 $ (1,165)
Adjustments to reconcile net income (loss) to net cash
Provided (used) by operating activities:
Depreciation and amortization 3,428 3,282
Directors fees paid in common stock 84 108
Change in operating assets and liabilities:
Accounts receivable 524 (485)
Costs and estimated earnings in excess of billings (5,608) 1,040
Other current assets 109 (81)
Accounts payable and accrued expenses 3,077 (620)
----------------- ----------------
Net cash provided by (used for) operating activities 2,201 2,079
----------------- ----------------
Cash Flows from Investing Activities:
Additions to property and equipment (62) (2,740)
Decrease in other assets 183 169
----------------- ----------------
Net cash provided by (used for) investing activities 121 (2,571)
----------------- ----------------
Cash Flows from Financing Activities:
Proceeds from sale/leaseback of equipment - 2,740
Principal payments on long-term borrowings (3,838) (709)
Principal payments on obligations under capital leases (2,733) (2,815)
Principal payments on obligations under related party
Capital leases (282) -
Proceeds from issuance of convertible subordinated debt - 1,000
Net proceeds from issuance of common stock 4,090 24
Net proceeds from issuance of preferred stock - 1,348
----------------- ----------------
Net cash provided by (used for) financing activities (2,763) 1,588
----------------- ----------------
Net increase (decrease) in cash and cash equivalents (441) 1,096
Cash and cash equivalents, beginning of period 441 166
----------------- ----------------
Cash and cash equivalents, end of period $ - $ 1,262
================= ================
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 1,204 $ 1,160
================= ================
Cash paid during the period for income taxes $ - $ -
================= ================
Non Cash Activities:
Issuance of stock options $ - $ -
================= ================
Conversion of preferred stock to common stock $ 1,579 $ -
================= ================
The accompanying notes are an integral part of these financial statements.
5
VIISAGE TECHNOLOGY, INC.
Notes To Financial Statements
1. DESCRIPTION OF BUSINESS
Viisage Technology, Inc., hereafter referred to as "Viisage" or the "Company",
is a leader in the emerging field of biometrics technology and in providing
digital identification systems and solutions. The Company focuses on
identification solutions that improve personal convenience and security, deter
fraud and reduce identification program costs. Viisage combines its systems
integration and software design capabilities with its proprietary software and
hardware products and other industry standard products to create complete
customized solutions. These turnkey solutions integrate image and data capture,
create relational databases, incorporate multiple biometrics and improve
customers' ability to move and manage information. Applications can include
driver's licenses, voter registration, national ID's, law enforcement, social
services, access control and PC network and Internet access security. To date,
Viisage's primary customers have been government agencies with particular
emphasis on U.S. drivers licensing agencies.
The Company has been engaged in one business area, the development and
implementation of digital identification systems and solutions. In June 1998,
the Company reorganized its operations to create two separate divisions, a
biometrics division and a systems integration and identification card division.
The biometrics division was created to respond to the growing market interest in
biometrics solutions. The biometrics division is focused on product, market and
channel development activities in three principal areas: facility access
control, PC network and Internet access security, and real-time large database
identification and verification of individuals. The systems integration and
identification card division (SI division) focuses on Viisage's public sector
markets and serves as a channel to existing customers and the public sector for
the Company's biometric technologies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial data as of October 1, 2000 and December 31, 1999, and
for the three month and nine month periods ended October 1, 2000 and September
26, 1999, have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The December 31,
1999 balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows as of October 1, 2000 and for the three
month and nine month periods ended October 1, 2000 and September 26, 1999, have
been made. The results of operations for the period ended October 1, 2000 are
not necessarily indicative of the operating results for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These assumptions affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6
Computation of Net Income (Loss) per Share
The basic net income (loss) per share calculation is computed based on the
weighted average number of shares of common stock outstanding during the period.
The impact of options outstanding of 2,510,000, the conversion of convertible
subordinated debt, the conversion of convertible preferred stock, and stock
warrants are not reflected in the September 26, 1999 dilutive net loss per share
calculation because their effects are antidilutive. The impact of certain
options outstanding of 1,936,991, the conversion of convertible subordinated
debt, the conversion of convertible preferred stock, and stock warrants are
reflected in the October 1, 2000 dilutive net income per share calculation.
3. INCOME TAXES
Due to the uncertainty surrounding the realization of the Company's net deferred
tax asset, the Company has provided a full valuation allowance against this
amount.
4. RELATED PARTY TRANSACTIONS AND SHAREHOLDERS' EQUITY
Currently, Lau Technologies (Lau) owns approximately 53% of the Company.
Readers are referred to the "Notes to Financial Statements" section of the
Company's 1999 Annual Report to Shareholders for further discussion.
The Company has also obtained from Lau an exclusive (except for limited fields
reserved by Lau), perpetual, worldwide license to use the U.S. Patent No.
5,432,864 purchased by Lau from Daozeng Lu and Simon Lu, and all improvements
thereto. This patent relates to a system for automatically verifying the
identity of an individual using identification parameters that are carried on an
escort memory, such as an identification or credit card. This license requires
royalty payments to be made to Lau for each unit sold or licensed by the
Company. The agreement also requires the Company to issue 50,000 shares of the
Company's common stock to Lau following the royalty commencement date.
The Company has two non-exclusive license agreements with Lau, whereby Lau acts
as a distributor of the Company's "Facial Recognition" Technology for certain
European markets, U.S. airports and other end users that are federal agencies.
Lau will pay the Company royalties on profits, as defined, under these
agreements. Through October 1, 2000, no royalties had been earned.
The Company has a project lease financing arrangement with Lau that provides for
up to $5.0 million of capital lease financing with $2.8 million outstanding at
October 1, 2000. Readers are referred to the "Notes to Financial Statements"
section of the Company's 1999 Annual Report to Shareholders for further
discussion.
In January 2000, 750 shares of the Series A Preferred Stock were converted into
259,356 shares of common stock.
On March 10, 2000, for an initial investment of $4,000,000 (of which $1,500,000
was funded in May 15, 2000, following the effectiveness of the registration
statement on Form S-3), the Company agreed to issue to Strong River Investments,
Inc. ("SRI") 391,917 shares of common stock, a closing warrant to purchase
97,979 shares of the Company's common stock, exercisable for five years at
$11.77 per share, and an adjustable warrant, exercisable at nominal
consideration during three 25 trading day periods beginning four months
following closing (which may be delayed to December 31, 2000). On March 10,
2000, the Company issued 244,948 of these shares of common stock to SRI, and in
May 2000, the Company issued the remaining 146,969 to SRI. The adjustable
warrant terminates if the market value of the Company common stock exceeds
$14.28 for any 20 consecutive trading days prior to the adjustment periods. If
not terminated, the number of shares that may be acquired under the adjustable
warrant is determined by a formula that is dependent on the extent to which the
market value of the Company's common stock is less than $11.09 per share during
the adjustment periods. Subject to certain closing conditions, two additional
investments of
7
$3,000,000 each may be invested by SRI between 150 and 170 days after the
initial investment and between 120 and 140 days thereafter on similar terms. The
purchase price of the common stock for each additional investment will be equal
to 115% of the average per share market value for the ten trading days prior to
the applicable closing date and the number of shares of common stock underlying
the closing warrant will be equal to 25% of the common stock sold pursuant to
each investment at an exercise price equal to 125% of the average per share
market price for the five trading days prior to such closing date. The
subsequent adjustable warrant will terminate when the market value of the common
stock on the applicable closing date exceeds 140% for any 20 consecutive trading
days prior to the adjustment period. If not terminated, the number of shares
that may be acquired under the adjustable warrant will be determined by a
formula that is based on 108% of the market value of the Company's common stock.
SRI exercised its first adjustable warrant in July 2000 and has delayed the
second vesting date for the second adjustable warrant. In connection with this
transaction, the Company paid an investment banking fee of $160,000 to Cardinal
Securities, L.L.C. ("Cardinal"), and issued warrants to purchase 75,000 shares
of the Company's common stock to Cardinal exercisable for five years, of which
46,875 shares has an exercise price of $12.35 per share, and 28,125 shares has
an exercise price of $6.175 per share.
In May 2000, 100 shares of the Series A Preferred Stock were converted into
33,333 shares of common stock.
In May 2000, warrants issued through the amendment of the Company's credit
agreement dated December 7, 1998 were converted into 9,184 shares of common
stock. This was a cashless exercise.
In June 2000, 280 shares of the Series A Preferred Stock were converted into
130,806 shares of common stock.
In July 2000, 750 shares of Series B Preferred Stock were converted into 321,586
shares of common stock.
In July 2000, adjustable warrants issued through the private placement of common
stock with SRI were converted into 334,530 shares of common stock. This was a
cashless exercise.
5. BUSINESS SEGMENTS
The Company is engaged in one business, the development and implementation of
identification and verification systems and solutions. In June 1998, the Company
reorganized its operations to create two separate divisions, a biometrics
division and a systems integration and identification card division. Since June
1, 1998, the Company has operated in two segments. Amounts for the biometrics
division prior to the reorganization are not material. The costs of shared
facilities and certain administrative services have been allocated to each
business based on actual usage or other methods that approximate actual usage.
All other costs and expenses have been allocated to each business based on
actual usage. Management evaluates segment performance based on operating
income.
For the three months ended October 1, 2000, three customers each accounted for
more than 10% of the Company's revenues and an aggregate of approximately 63% of
revenues for the period. For the three months ended September 26, 1999, two
customers each accounted for more than 10% of the Company's revenues and an
aggregate of approximately 24% of revenues for the period. For the nine months
ended October 1, 2000, four customers each accounted for more than 10% of the
Company's revenues and an aggregate of approximately 60% of revenues for the
period. For the nine months ended September 26, 1999, three customers each
accounted for more than 10% of the Company's revenues and an aggregate of
approximately 44% of revenues for the period.
8
Business Segment Information
(in thousands)
Three Months Ended Nine Months Ended
------------------------- -------------------------
Oct. 1, Sept. 26, Oct. 1, Sept. 26,
2000 1999 2000 1999
--------- ---------- ---------- ----------
Revenues:
Systems integration division $8,229 $5,075 $19,466 $14,220
Biometrics division 51 134 300 134
-------- -------- --------- ---------
$8,280 $5,209 $19,766 $14,354
======== ======== ========= =========
Operating Income (Loss)
Systems integration division $1,239 $ 797 $ 3,546 $ 1,727
Biometrics division (651) (391) (1,664) (1,344)
-------- -------- --------- ---------
$ 588 $ 406 $ 1,882 $ 383
======== ======== ========= =========
9
VIISAGE TECHNOLOGY, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and accompanying notes contained in the Company's 1999
Annual Report and Form 10-K.
The following discussion and analysis contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
section below entitled "Certain Factors That May Affect Future Results." The
cautionary statements made herein should be read as being applicable to all
related forward-looking statements in this Form 10-Q.
RESULTS OF OPERATIONS
Revenues are derived principally from multi-year contracts for systems
implementation, card production and related services. Revenues for the third
quarter of 2000 were approximately $8,280,000, compared to approximately
$5,209,000 for the third quarter of 1999. Revenues for the first nine months of
2000 were approximately $19,766,000, compared to approximately $14,354,000 for
the same period in 1999. The 59.0% increase in revenue between the two three-
month periods and the 37.7% between the two nine-month periods was primarily a
result of new contracts and extensions with our existing customers.
Gross margins decreased to 19.3% in the third quarter of 2000 from 20.6% in the
third quarter of 1999. Gross margins increased to 24.1% for the first nine
months of 2000, compared to 18.4% for the same period in 1999. The change in
gross margins between the two three-month periods and two nine-month periods is
due principally to the impact of the revenue mix and volume.
Sales and marketing expenses increased approximately $52,000 in the third
quarter of 2000 from the third quarter of 1999, and decreased approximately
$23,000 for the first nine months of 2000 from the first nine months of 1999.
This represents a decrease to 2.2% from 2.6% of revenue for the quarter to
quarter period and a decrease to 2.7% from 3.9% for the first nine months of
each fiscal year. The increase in the third quarter is due principally to the
Company's continuing efforts in marketing our patented biometric solutions. The
decrease for the first nine months represents the Company's continued efforts to
increase its distribution and marketing capabilities for its facial recognition
solutions by adding and certifying new system integrators and reseller partners.
This allows the Company to control its costs while increasing its marketing
capabilities.
Research and development expenses increased approximately $140,000 in the third
quarter of 2000 from the third quarter of 1999 and $235,000 in the first nine
months of 2000 from the first nine months of 1999. This represents an increase
to 2.7% from 1.7% of revenue for the quarter to quarter period and 2.5% from
1.8% for the first nine months of each fiscal year. The increase is due
principally to the Company's continued investment in the biometrics division.
Research and development costs do not include amounts for specific projects that
are allocated to project costs, and do not reflect the benefits to Viisage under
license arrangements from the research and development efforts of Lau
Technologies and the Massachusetts Institute of Technology for projects that are
not directly related to the Company.
General and administrative expenses increased by approximately $154,000 in the
third quarter of 2000 from the third quarter of 1999 and $406,000 in the first
nine months of 2000 from the first nine months of 1999. This represents a
10
decrease to 7.3% from 8.6 % of revenue for the quarter to quarter periods and
9.3% from 10.0% for the first nine months of each fiscal year. The increase in
expenses is due principally to the increase in the business volume.
Interest expense decreased approximately $91,000 in the third quarter of 2000
from the third quarter of 1999 and $253,000 in the first nine months of 2000
from the first nine months of 1999. This represents a decrease to 4.6% from 9.1%
of revenue for the quarter to quarter period and 6.6% from 10.8% for the first
nine months of each fiscal year. This decrease reflects a reduction in
borrowings during 2000.
No provision for income taxes has been made in the current period or the nine-
month period due to the available net operating loss carryforwards. The Company
did not record a tax benefit for the remaining net operating loss carry forwards
due to the uncertainty of when such benefit will be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
None.
LIQUIDITY AND CAPITAL RESOURCES
In June 2000 the Company refinanced its operating line of credit. The new
revolver is a sweep account, which is set-up to maintain the lowest possible
balance on the revolver by maintaining a zero balance of cash at all times. At
the end of the third quarter 2000, $2.7 million of the $4.0 million line had
been utilized. This compares to a net of $6.1 million utilization of the $6.5
million line on December 31, 1999.
Accounts receivable decreased approximately 16.1% from December 31, 1999 to
October 1, 2000 due to an improvement in collections.
Costs and estimated earnings in excess of billings increased approximately 25.2%
from December 31, 1999 to October 1, 2000, which reflects the effect of new
contract awards.
Historically, the Company has not made substantial capital expenditures for
facilities, office and computer equipment and has satisfied its needs in these
areas principally through leasing.
The Company also has a system project lease financing arrangement with a
commercial leasing organization. Pursuant to this arrangement, the lessor
purchases certain of our digital identification systems and leases them back to
the Company for deployment with identified and contracted customers approved by
the lessor. The lessor retains title to systems and has an assignment of the
Company's rights under the related customer contracts, including rights to use
the software and technology underlying the related systems. Under this
arrangement, the lessor bears the credit risk associated with payments by the
Company's customers, but the Company bears performance and appropriation risk
and is generally required to repurchase a system in the event of a termination
by a customer for any reason except credit default. The Company is also required
to maintain certain financial ratios and minimum levels of tangible capital
funds, as defined. These project lease arrangements are accounted for as capital
leases. The current arrangement provides for project financing of up to $15.0
million. At October 1, 2000, the Company had approximately $7.7 million
outstanding under the lease financing arrangement. The Company has a similar
project lease financing arrangement with Lau that provides for up to $5.0
million of capital leases financing with $2.8 million outstanding at October 1,
2000.
The Company believes that it will continue to meet its debt covenants. However,
this expectation is dependent in part on achieving business forecasts. If the
Company does not meet such covenants, the bank and the lessor could require
immediate repayment of outstanding amounts.
11
In May 1999, the Company received a commitment from Lau to lend up to $2,000,000
in exchange for a 4% convertible subordinated note. Amounts drawn under the
note, with Lau's consent, and related accrued interest are convertible at Lau's
option into shares of the Company's common stock at any time through the
expiration date of January 1, 2001 at $1.26 per share. As of October 1, 2000,
the Company has borrowed $1,000,000 under this commitment.
In January 2000, 750 shares of the Series A Preferred Stock were converted into
259,356 shares of common stock.
On March 10, 2000, for an initial investment of $4,000,000 (of which $1,500,000
was funded in May 15, 2000, following the effectiveness of the registration
statement on Form S-3), the Company agreed to issue to Strong River Investments,
Inc. ("SRI") 391,917 shares of common stock, a closing warrant to purchase
97,979 shares of the Company's common stock, exercisable for five years at
$11.77 per share, and an adjustable warrant, exercisable at nominal
consideration during three 25 trading day periods beginning four months
following closing (which may be delayed to December 31, 2000). On March 10,
2000, the Company issued 244,948 of these shares of common stock to SRI, and in
May 2000, the Company issued the remaining 146,969 to SRI. The adjustable
warrant terminates if the market value of the Company common stock exceeds
$14.28 for any 20 consecutive trading days prior to the adjustment periods. If
not terminated, the number of shares that may be acquired under the adjustable
warrant is determined by a formula that is dependent on the extent to which the
market value of the Company's common stock is less than $11.09 per share during
the adjustment periods. Subject to certain closing conditions, two additional
investments of $3,000,000 each may be invested by SRI between 150 and 170 days
after the initial investment and between 120 and 140 days thereafter on similar
terms. The purchase price of the common stock for each additional investment
will be equal to 115% of the average per share market value for the ten trading
days prior to the applicable closing date and the number of shares of common
stock underlying the closing warrant will be equal to 25% of the common stock
sold pursuant to each investment at an exercise price equal to 125% of the
average per share market price for the five trading days prior to such closing
date. The subsequent adjustable warrant will terminate when the market value of
the common stock on the applicable closing date exceeds 140% for any 20
consecutive trading days prior to the adjustment period. If not terminated, the
number of shares that may be acquired under the adjustable warrant will be
determined by a formula that is based on 108% of the market value of the
Company's common stock. SRI exercised its first adjustable warrant in July 2000
and has delayed the second vesting date for the second adjustable warrant. In
connection with this transaction, the Company paid an investment banking fee of
$160,000 to Cardinal Securities, L.L.C. ("Cardinal"), and issued warrants to
purchase 75,000 shares of the Company's common stock to Cardinal exercisable for
five years, of which 46,875 shares has an exercise price of $12.35 per share,
and 28,125 shares has an exercise price of $6.175 per share.
In May 2000, 100 shares of the Series A Preferred Stock were converted into
33,333 shares of common stock.
In May 2000, warrants issued through the amendment of the Company's credit
agreement dated December 7, 1998 were converted into 9,184 shares of common
stock. This was a cashless exercise.
In June 2000, the Company refinanced its existing revolving line of credit with
a new commercial bank that provides for borrowings of up to $4 million through
June 2002 at the prime rate plus 1 1/4%. The facility is secured by
substantially all of the Company's assets and requires the Company to maintain
certain financial ratios and minimum levels of earnings and tangible capital
funds, as defined.
In June 2000, 280 shares of the Series A Preferred Stock were converted into
130,806 shares of common stock.
In July 2000, 750 shares of Series B Preferred Stock were converted into 321,586
shares of common stock.
In July 2000, adjustable warrants issued through the private placement of common
stock with SRI were converted into 334,530 shares of common stock. This was a
cashless exercise.
The Company believes that if it meets its business forecast for 2000, cash flows
from available borrowings, project leasing, operations and capital raising will
be sufficient to meet its working capital and capital expenditure needs for the
12
foreseeable future. There can be no assurance, however, that additional capital
will be available on favorable terms or at all. At this time, the Company does
not intend to exercise its right to obtain the additional six million dollars
from SRI from the private placement of common stock. If the Company is unable to
obtain additional capital, as needed, on acceptable terms the Company may be
unable to take full advantage of future opportunities or respond to competitive
pressures, which could adversely affect the Company's business, financial
condition and results of operations.
MARKET RISK
Except for the Company's revolving credit facility, which has a variable
interest rate, the Company has no material exposure to market risk that could
affect its future results of operations and financial condition.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in an environment that involves a number of risks, some of
which are beyond the Company's control. Forward-looking statements in this
document and those made from time to time by the Company through its senior
management are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements concerning
future plans or results are necessarily only estimates and actual results could
differ materially from expectations. Certain factors that could that could cause
or contribute to such differences include among other things:
[_] potential fluctuations in quarterly results;
[_] the size and timing of award and performance on contracts;
[_] dependence on large contracts and a limited number of customers;
[_] lengthy sales and implementation cycles;
[_] changes in management estimates in accounting for contracts;
[_] availability and cost of key components;
[_] market acceptance of new or enhanced products and services;
[_] proprietary technology and changing competitive technology;
[_] ability to obtain project financing
[_] system performance;
[_] management of growth;
[_] dependence on key personnel;
[_] general economic and political conditions and other factors affecting
spending by customers.
Any of these factors could have a material adverse impact on the Company's
operations and financial results.
13
VIISAGE TECHNOLOGY, INC.
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
In July 2000, 750 shares of Series B Preferred Stock were converted into 321,586
shares of common stock.
In July 2000, adjustable warrants issued through the private placement of common
stock with SRI were converted into 334,530 shares of common stock. This was a
cashless exercise.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.35 Pennsylvania Department of Transportation Contract, dated
June 19, 2000.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
VIISAGE TECHNOLOGY, INC.
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.
VIISAGE TECHNOLOGY, INC.
Date: November 9, 2000 By: /s/ Thomas J. Colatosti
----------------------------
Thomas J. Colatosti
President and Chief Executive Officer
By: /s/ Sean F. Mack
----------------------------
Sean F. Mack
Vice President, Controller and Treasurer
15