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 June 28, 1998.
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 July 31, 1998
--------------------------------- --------------------------------
Common stock, $.001 par value 8,076,840
VIISAGE TECHNOLOGY, INC.
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheets as of June 28, 1998 and December 31, 1997................... 1
Condensed Statements of Operations for the three months and six months ended
June 28, 1998 and June 29, 1997...................................................... 2
Condensed Statements of Cash Flows for the six months
ended June 28, 1998 and June 29, 1997................................................ 3
Notes to Condensed Financial Statements.............................................. 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................. 7
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders................................. 12
Item 6 - Exhibits and Reports on Form 8-K.................................................... 12
SIGNATURES.................................................................................... 13
i
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
VIISAGE TECHNOLOGY, INC.
Condensed Balance Sheets
(In thousands)
June 28, December 31,
1998 1997
-------------- --------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ - $ 1,611
Accounts receivable 4,866 3,171
Costs and estimated earnings in excess of billings 26,294 25,483
Other current assets 529 423
------- -------
Total current assets 31,689 30,688
Property and equipment, net 16,448 16,046
Other assets 719 729
------- -------
$48,856 $47,463
======= =======
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $10,426 $12,253
Accrued and deferred income taxes - 16
Current portion of long-term debt 549 549
Obligations under capital leases 2,944 2,609
------- -------
Total current liabilities 13,919 15,427
Long-term debt 8,166 3,505
Obligations under capital leases 10,135 9,795
------- -------
32,220 28,727
Shareholders' equity 16,636 18,736
======= =======
$48,856 $47,463
======= =======
The accompanying notes are an integral part of these financial statements.
1
VIISAGE TECHNOLOGY, INC.
Condensed Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------------ ------------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenues $ 2,965 $ 8,554 $ 7,594 $ 15,732
Project costs 2,622 6,080 6,335 11,229
--------- ------- -------- --------
Project Margin 343 2,474 1,259 4,503
--------- ------- -------- --------
Operating expenses:
Sales and marketing 857 679 1,448 1,251
Research and development 102 16 119 51
General and administrative 537 580 1,035 1,064
--------- ------- -------- --------
Total operating expenses 1,496 1,275 2,602 2,366
--------- ------- -------- --------
Operating income (loss) (1,153) 1,199 (1,343) 2,137
Interest expense, net (415) (48) (768) (42)
--------- ------- -------- -------
Income (loss) before income taxes (1,568) 1,151 (2,111) 2,095
Income taxes - 461 - 836
========= ======= ======== ========
Net income (loss) $ (1,568) $ 690 $ (2,111) $ 1,259
========= ======= ======== ========
Basic net income (loss) per share $ (0.19) $ 0.09 $ (0.26) $ 0.16
========= ======= ======== ========
Weighted average common shares 8,070 8,055 8,069 8,055
========= ======= ======== ========
Diluted net income (loss) per share $ (0.19) $ 0.08 $ (0.26) $ 0.15
========= ======= ======== ========
Weighted average common shares 8,070 8,670 8,069 8,668
========= ======= ======== ========
The accompanying notes are an integral part of these financial statements.
2
VIISAGE TECHNOLOGY, INC.
Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended
--------------------------------
June 28, June 29,
1998 1997
---------- ----------
Cash Flows from Operating Activities:
Net income (loss) $ (2,111) $ 1,259
Adjustments to reconcile net income (loss) to net cash
(used) provided by operating activities:
Depreciation and amortization 1,700 829
Changes in operating assets and liabilities:
Accounts receivable (1,695) (1,172)
Costs and estimated earnings in excess of billings (811) (10,719)
Other current assets (106) (105)
Accounts payable and accrued expenses (1,827) 1,423
Accrued and deferred taxes (16) 716
---------- ----------
Net cash used for operating activities (4,866) (7,769)
---------- ----------
Cash Flows from Investing Activities:
Purchase of contract equipment converted to capital leases (2,070) (2,005)
Additions to property and equipment (32) (282)
Decrease in other assets 10 78
---------- ----------
Net cash used for investing activities (2,092) (2,209)
---------- ----------
Cash Flows from Financing Activities:
Net revolving credit borrowings 4,936 -
Proceeds from sale/leaseback of equipment 2,070 2,005
Principal payments on long-term borrowings (275) -
Principal payments on obligations under capital leases (1,395) (613)
Net proceeds from issuance of common stock 11 -
---------- ----------
Net cash provided by financing activities 5,347 1,392
---------- ----------
Decrease in cash and cash equilvalents (1,611) (8,586)
Cash and cash equivalents, beginning of period 1,611 11,073
---------- ----------
Cash and cash equivalents,end of period $ - $ 2,487
========== ==========
Supplemental cash flow information:
Cash paid during the period for interest $ 594 $ 134
========== ==========
Cash paid during the period for income taxes $ - $ 120
========== ==========
The accompanying notes are an integral part of these financial statements.
3
VIISAGE TECHNOLOGY, INC.
Notes To Condensed Financial Statements
(UNAUDITED)
Note 1. Basis of Presentation
The financial information included herein is unaudited, however, the
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods presented. These financial statements should be read in
conjunction with the financial statements and notes thereto and management's
discussion and analysis of financial condition and results of operations
included in the Company's 1997 Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
The results of operations for the periods ended June 28, 1998 are not
necessarily indicative of the operating results to be expected for the full
year.
The condensed balance sheet as of December 31, 1997 has been derived from
the audited financial statements for that date.
Note 2. 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. Income tax expense for 1997 was provided at the Company's
estimated effective income tax rate.
Note 3. Net Income (Loss) Per Share
Basic net income (loss) per share is computed based on the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per share includes the dilutive impact of potential common stock.
For 1998, the diluted per share amounts do not reflect the impact of
options outstanding for 1,509,185 shares because their effect is antidilutive.
For 1997, diluted net income per share reflects the dilutive effect (615,000
shares for the three months and 613,000 shares for the six months ended June 29,
1997) of all common stock options outstanding during 1997 using the treasury
stock method. Except for options, the Company does not have any other potential
common stock.
4
Note 4. Restructuring Costs and Reorganization
During the first quarter of 1998, the Company recorded non-recurring
charges of approximately $230,000 related to a restructuring to reduce expenses
in line with the Company's revised plan. Approximately $50,000 of such charges
are included in project costs, $170,000 are included in sales and marketing
expense and $10,000 are included in general and administrative expense in the
statement of operations.
Effective June 1, 1998, the Company reorganized operations to create a
separate biometrics division to respond to the growing market interest in
biometric solutions. Under the direction of the Company's Chief Executive
Officer, the biometrics division will concentrate on product, market and channel
development activities for Viisage's facial recognition and other biometric
technologies. The Company's systems integration and identification card business
will be operated as a separate division and profit center under the direction of
the Company's Chief Operating Officer, and also serve as a market channel to the
public sector for Viisage's biometric products.
Note 5. Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 129, Disclosure of
Information about Capital Structure, which establishes standards for disclosing
information about an entity's capital structure. In June 1997, the FASB issued
SFAS No. 130, Reporting Comprehensive Income, which establishes standards for
reporting and disclosure of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. As required, the Company has adopted SFAS Nos. 129 and 130.
Adoption of these statements did not have a material impact on the Company's
required disclosures.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, which establishes standards for reporting
and disclosure of information about operating segments as well as disclosures
about products and services, geographic areas and major customers. As required,
the Company will adopt SFAS No. 131 in the fourth quarter and will provide the
required financial disclosures for the systems integration and identification
card and biometrics divisions referred to in Note 4.
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position No. 98-5 (SOP 98-5), Reporting on the Costs of Start-Up
Activities, which is effective for fiscal years beginning after December 15,
1998. Early adoption is encouraged. SOP 98-5 requires that costs of start-up
activities and organization costs be expensed as incurred. The impact of
adopting SOP 98-5 will be accounted for as the cumulative effect of a change in
accounting principle as described in Accounting Principles Board Opinion 20,
Accounting Changes. The Company is studying the new SOP and considering when it
will adopt the SOP and what effect it will have on certain deferred precontract
costs that are included in costs and estimated earnings in excess of billings in
the accompanying balance sheets.
5
Note 6. Long-term Debt
At June 28, 1998, the Company was not in compliance with certain covenants
included in its revolving credit and term loan facility. In August 1998, the
Company received a commitment letter from the bank to provide a new revolving
credit facility to the Company through June 2000. Outstanding term and revolving
credit borrowings will be repaid with funds from the new facility at closing.
The new facility provides for revolving credit borrowings of up to $11 million
through December 1998 and $10 million thereafter at the prime rate plus 1/2% or
other LIBOR-based options. Borrowings over $9.5 million in 1998 and $8 million
thereafter require prior bank consent. The new facility is secured by certain
contract assets and requires the Company to maintain certain financial ratios
and minimum levels of earnings and tangible capital funds, as defined. The new
facility also requires the Company to raise funds, as needed, from other sources
to cover biometrics division expenses. These sources are expected to include a
combination of biometrics division revenues, subordinated debt and equity
capital.
The Company believes that it will continue to meet its debt covenants.
However, this expectation is dependent in part on achieving new business
forecasts and raising funds to cover biometrics division expenses. If the
Company does not meet such covenants, the bank could require immediate
repayments of amounts outstanding.
6
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 notes thereto contained in the Company's 1997 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.
Overview
- --------
Viisage develops and implements turnkey digital identification systems and
solutions intended to improve personal convenience and security, deter fraud and
reduce customers' identification program costs. The Company combines its
systems integration and software design capabilities with its proprietary
software and hardware products to create complete customized solutions.
Viisage's products are currently operating at over 800 locations. Applications
can include systems and cards for national ID's, driver's licenses, law
enforcement, voter registration, social services, access control and
information, healthcare, financial services and retail. In addition, Viisage is
commercializing patented facial recognition technology for the real-time
identification and verification of individuals.
During 1997 and 1998, the Company's revenue growth has slowed
significantly due primarily to procurement delays in its principal markets. The
Company attributes these delays to an increase in political considerations
affecting these procurement decisions, such as statewide elections, and
increasing legislative interest in biometric solutions and inter-agency sharing
of resources and information. The Company believes that these developments
could cause its business to be more cyclical and continue to lengthen
procurement cycles. However, the Company believes that the acceptance of
digital identification technology in recent years, its commitment to providing
customized solutions for its customers needs, its expertise in facial imaging
and biometric solutions and its proprietary software and hardware products will
continue to contribute to its growth. The Company also believes that it is in
the early stages of the product life cycle for solutions that incorporate facial
recognition and multiple biometrics and is well positioned to meet customer
needs as they develop.
Effective June 1, 1998, the Company reorganized operations to create a
separate biometrics division to respond to the growing market interest in
biometric solutions. Under the direction of the Company's Chief Executive
Officer, the biometrics division will concentrate on product, market and channel
development activities for Viisage's facial recognition and other biometric
technologies. The Company's systems integration and identification card business
will be operated as a separate division and profit center under the direction of
the Company's Chief Operating Officer, and also serve as a market channel to the
public sector for Viisage's biometric products.
The Company's systems integration and identification card division
provides systems and services principally under contracts that have five-year
terms and provide for several annual renewals after the initial contract term.
Contracts generally provide for a fixed price for the system and/or for each
card
7
produced. Contract prices vary depending on, among other things, design and
integration complexities, the nature and number of workstations and sites, the
projected number of cards to be produced, the size of the database, the level of
post-installation support and the competitive environment. Substantially all of
the Company's revenues are currently derived by its systems integration and
identification card division from public sector customers and contractors to
such customers. The Company believes for the foreseeable future that it will
continue to derive a significant portion of its revenues from a limited number
of large public sector contracts. For the six months ended June 28, 1998, three
customers each accounted for more than 10% of the Company's revenues and an
aggregate of 46% of revenues for the period.
The Company's results of operations are significantly affected by, among
other things, the timing of award and performance on contracts. As a result,
the Company's revenues and income may fluctuate from quarter to quarter, and
comparisons over longer periods of time may be more meaningful. The Company's
results of operations are not seasonal since contracts are awarded and performed
throughout the year. However, as discussed more fully above, the Company
believes its systems integration and identification card business is subject to
cyclical procurement delays that may be related to statewide election cycles.
Results of Operations
- ---------------------
Non-recurring Charge. During the first quarter of 1998, the Company recorded
non-recurring charges of approximately $230,000 related to a restructuring to
reduce expenses in line with the Company's revised plan for 1998. Approximately
$50,000 of such charges are included in project costs, $170,000 are included in
sales and marketing expenses and $10,000 are included general and administrative
expenses in the statement of operations.
Revenues. Systems integration and identification card division (SI division)
revenues are derived principally from systems implementation, card production
and related services under multi-year contracts. Revenues decreased 65% to $3.0
million for the quarter ended June 28, 1998 from $8.5 million for the comparable
period in 1997. For the six months ended June 28, 1998, revenues decreased 52%
to $7.6 million from $15.7 million for the same period in 1997. These decreases
reflect the slowdown in new business awards during 1997 and 1998. Biometrics
division revenues for the periods were not material.
Project Costs and Margin. SI division project costs consist primarily of
hardware, consumables (printer ribbons, cards, holographic overlays, etc.),
system design, software development and implementation labor, maintenance and
overhead. As a percentage of revenues, project costs increased to 88% and 83%
for the quarter and six months ended June 28, 1998, respectively, from 71% for
the comparable periods in 1997. These increases are due primarily to the impact
of lower margin contracts in the overall revenue mix. Second quarter overhead
variances resulting from lower than anticipated 1998 revenues and first quarter
restructuring costs also increased project costs by approximately 4.6% and 2.5%
for the quarter and year-to-date periods, respectively. Project margin decreased
86% to $343,000 (12% of revenues) for the quarter ended June 28, 1998 from $2.5
million (29% of revenues) for the comparable period in 1997. For the six months
ended June 28, 1998, project margin decreased 72% to $1.3 million (17% of
revenues) from $4.5 million (29% of revenues) for the same period in 1997.
These decreases reflect lower revenues in 1998 and the increase in project costs
discussed above. Biometrics division project costs for the periods were not
material.
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation and professional service fees for marketing, bid and proposal and
customer support activities. SI division sales and marketing expenses for the
quarter ended June 28, 1998 decreased 1% to $675,000 from $679,000 for the
8
comparable period in 1997. For the six months ended June 28, 1998, SI division
sales and marketing expenses, excluding non-recurring charges, decreased 12% to
$1,096,000 from $1,251,000 in 1997. These changes reflect the allocation of
certain SI division resources to sales and marketing as part of the
reorganization discussed above and the reduction in headcount in connection with
the first quarter restructuring mentioned above. Including non-recurring
charges, SI division sales and marketing expenses increased 1% to $1,266,000 for
the six months ended June 28, 1998. As a percentage of revenues, SI division
sales and marketing expenses, excluding non-recurring charges, increased to 23%
for the quarter and 14% for the six month period ended June 28, 1998 from 8% for
the comparable periods in 1997 due to the decrease in 1998 revenues discussed
above. Including non-recurring charges, SI division sales and marketing expenses
for 1998 increased to 23% and 17% for the quarter and year-to-date periods,
respectively. Sales and marketing expenses since the reorganization for the
biometrics division were $182,000.
Research and Development. Research and development expenses consist principally
of compensation, outside services and materials utilized for product and
software development activities that are not related to specific projects. SI
division research and development expenses for the quarter and year-to-date
periods were $27,000 and $44,000, respectively, in 1998 compared to $16,000 and
$51,000 for the comparable periods in 1997. Biometrics division research and
development expenses since the reorganization were $75,000. Expenditures for
1998 and 1997 relate primarily to the Company's facial recognition products.
Such amounts do not include amounts for specific projects that are allocated to
project costs and do not reflect the benefits to the Company 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. General and administrative expenses consist
principally of compensation for executive management, finance and administrative
personnel and outside professional fees and are shared by the Company's two
divisions. General and administrative expenses decreased 7% to $537,000 for the
quarter ended June 28, 1998 from $580,000 for the comparable period in 1997.
For the six months ended June 28, 1998, general and administrative expenses
decreased 3% to $1.0 million from $1.1 million for the same period in 1997.
These decreases reflect cost savings from the restructuring discussed above. As
a percentage of revenues, general and administrative expenses increased to 18%
and 14% for the quarter and six month period ended June 28, 1998, respectively,
from 7% for the comparable periods in 1997 due primarily to lower revenues in
1998.
Interest Expense. The increases in net interest expense to $415,000 and
$768,000 for the quarter and six months ended June 28, 1998, respectively, from
net interest expense of $48,000 and $42,000 for the comparable periods in 1997
reflect increased borrowings during 1998 and a reduction in interest earned on
cash equivalents in 1998.
Income Taxes. The Company did not record any tax benefit for the 1998 loss due
to the uncertainty of when such benefit will be realized. Income tax expense for
1997 was provided at the Company's estimated effective tax rate.
Liquidity and Capital Resources
- -------------------------------
At June 28, 1998, working capital was $17.8 million compared to $15.3
million at December 31, 1997. The increase in working capital is due primarily
to the increases in accounts receivable and costs and estimated earnings in
excess of billings.
For the six months ended June 28, 1998, operations and investing
activities utilized cash of approximately $4.9 million and $2.1 million,
respectively, principally to fund increases in project assets
9
and changes in working capital. Financing was provided primarily by long-term
borrowings and the project lease financing arrangement referred to below.
At June 28, 1998, the Company was not in compliance with certain covenants
included in its revolving credit and term loan facility. In August 1998, the
Company received a commitment letter from the bank to provide a new revolving
credit facility to the Company through June 2000. Outstanding term and revolving
credit borrowings will be repaid with funds from the new facility at closing.
The new facility provides for revolving credit borrowings of up to $11 million
through December 1998 and $10 million thereafter at the prime rate plus 1/2% or
other LIBOR-based options. Borrowings over $9.5 million in 1998 and $8 million
thereafter require prior bank consent. The new facility is secured by certain
contract assets and requires the Company to maintain certain financial ratios
and minimum levels of earnings and tangible capital funds, as defined. The new
facility also requires the Company to raise funds, as needed, from other sources
to cover biometrics division expenses. These sources are expected to include a
combination of biometrics division revenues, subordinated debt and equity
capital.
The Company believes that it will continue to meet its debt covenants.
However, this expectation is dependent in part on achieving new business
forecasts and raising funds to cover biometrics division expenses. If the
Company does not meet such covenants, the bank could require immediate repayment
of amounts outstanding.
The Company also has a system project lease financing arrangement with a
commercial leasing organization providing for project financing of up to $25.0
million. Pursuant to this arrangement, the lessor purchases certain of the
Company's digital identification systems and leases them back to Viisage for
deployment with identified and contracted customers approved by the lessor. The
lessor retains title to systems and has an assignment of Viisage'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 Viisage's customers, but
Viisage 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. These project lease arrangements are accounted for as
capital leases. At June 28, 1998, the Company had approximately $13 million
available under the lease financing arrangement, subject to lessor approval.
The Company plans to raise capital, as needed, to fund biometrics division
expenses and believes that cash flows from available borrowings, project
leasing, operations and capital raising will be sufficient to meet the Company's
working capital and capital expenditure needs for the foreseeable future. There
can be no assurance, however, that additional capital will be available on
favorable terms or at all. 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.
Accounting Pronouncements
- -------------------------
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, which establishes standards for reporting
and disclosure of information about operating segments as well as disclosures
about products and services, geographic areas and major customers. As required,
the Company will adopt SFAS No. 131 in the fourth quarter and will provide the
required financial disclosures for the systems integration and identification
card and biometrics divisions.
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position No. 98-5 (SOP 98-5), Reporting on the Costs of Start-Up
Activities, which is effective for fiscal years beginning after December 15,
1998. Early adoption is encouraged. SOP 98-5 requires that costs of start-up
activities and organization costs be expensed as incurred. The impact of
adopting SOP 98-5 will be accounted for as the cumulative effect of a change in
accounting principle as described in Accounting Principles Board Opinion 20,
Accounting Changes. The Company is studying the new SOP and
10
considering when it will adopt the SOP and what effect it will have on certain
deferred precontract costs that are included in costs and estimated earnings in
excess of billings in the accompanying balance sheets.
Impact of Year 2000 Issue
- -------------------------
The Year 2000 issue results from computer programs that do not
differentiate between the year 1900 and the year 2000 because they are written
using two digits rather than four to define the applicable year. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000. The Company's accounting and information systems service
provider has implemented a Year 2000 compliance program to ensure that the
Company's accounting and information systems will function properly beyond 1999.
Also, the Company believes that software sold by the Company to its customers
either on a standalone basis or as part of a larger system integration project
is Year 2000 compliant or can be made Year 2000 compliant with minor
modifications. Accordingly, the Company does not expect the costs related to
these matters to be material to its financial position or results of operations
in any given year. The Company is not aware of any Year 2000 issues encountered
or expected to be encountered by its suppliers, customers or financial
institutions and is planning to conduct a survey before yearend to identify
potential issues. If problems related to any of these matters arise, such
problems could have a material impact on the Company's operating results.
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 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
incident to accounting for contracts, availability and cost of key components,
market acceptance of new or enhanced products and services, proprietary
technology and changing technology, competitive conditions, system performance,
management of growth, dependence on key personnel and general economic and
political conditions and other factors affecting spending by customers.
11
VIISAGE TECHNOLOGY, INC.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
New Board of Directors member, Charles E. Levine was elected to a two-year
term, Board of Directors members, Charles J. Johnson and Harriet Mouchly-Weiss
were elected to three-year terms and the Company's selection of independent
public accountants was ratified at the Annual Meeting of Shareholders held on
May 12, 1998. The terms of Board of Directors members, Denis K. Berube, Peter
Nessen and Thomas J. Reilly continued after the Annual Meeting. A total of
7,772,912 shares out of the total outstanding shares of 8,067,398 voted at the
Annual Meeting. The vote to elect Charles E. Levine was 7,752,587 for and 20,325
withheld, the vote to elect Charles J. Johnson and Harriet Mouchly-Weiss was
7,753,487 for and 19,425 withheld and the vote to ratify the Company's selection
of independent public accountants was 7,766,837 for, 5,275 against and 800
abstained.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.19 Debt Commitment Letter from State Street Bank
dated August 12, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
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: August 13, 1998 By: /s/ Robert C. Hughes
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Robert C. Hughes
President and Chief
Executive Officer
By: /s/ William A. Marshall
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William A. Marshall
Chief Financial Officer
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