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 SEPTEMBER 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission file number 000-24389
VASCO DATA SECURITY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-4169320
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1901 SOUTH MEYERS ROAD, SUITE 210
OAKBROOK TERRACE, ILLINOIS 60181
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (630) 932-8844
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.
Yes X No
----- -----
As of September 30, 2002, 28,389,484 shares of the Company's Common Stock,
$.001 par value per share ("Common Stock"), were outstanding.
VASCO DATA SECURITY INTERNATIONAL, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
December 31, 2001 and September 30, 2002 (Unaudited) ........ 3
Consolidated Statements of Operations (Unaudited)
for the three and nine months ended September 30, 2001
and 2002...................................................... 4
Consolidated Statements of Comprehensive Loss (Unaudited)
for the three and nine months ended September 30, 2001
and 2002...................................................... 5
Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended September 30, 2001 and 2002......... 6
Notes to Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 12
Item 4. Disclosure Controls and Procedures............................ 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 12
Item 4. Submission of Matters To a Vote of Securityholders............ 13
Item 6. Exhibits and Reports on Form 8-K.............................. 13
SIGNATURES............................................................. 13
CERTIFICATIONS......................................................... 14
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This report contains the following trademarks of the Company, some of which
are registered: VASCO, AccessKey, VACMan Server and VACMan/CryptaPak,
AuthentiCard and Digipass.
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
2001 2002
------------ -------------
(AUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 6,342,440 $ 2,737,958
Accounts receivable, net of allowance for
doubtful accounts of $206,913 and $199,626
in 2001 and 2002 3,791,916 4,613,350
Inventories,net 2,012,567 1,015,292
Prepaid expenses 405,815 398,656
Deferred income taxes 83,000 -
Other current assets 661,597 329,388
------------ ------------
Total current assets 13,297,335 9,094,644
Property and equipment
Furniture and fixtures 1,733,349 1,435,569
Office equipment 2,070,090 2,461,385
------------ ------------
3,803,439 3,896,954
Accumulated depreciation (2,088,939) (2,504,670)
------------ ------------
1,714,500 1,392,284
Intangible assets, net of accumulated
amortization of $4,621,160 in 2001
and $4,374,500 in 2002 2,411,888 2,304,007
Other assets 27,273 73,292
------------ ------------
Total assets $ 17,450,996 $ 12,864,227
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 158,990 $ 231,114
Accounts payable 3,326,652 2,052,209
Deferred revenue 869,893 408,371
Other accrued expenses 2,280,491 1,790,519
------------ ------------
Total current liabilities 6,636,026 4,482,213
Long-term debt, less current maturities 3,667,882 3,441,305
STOCKHOLDERS' EQUITY :
Series C Convertible Preferred Stock, $.01
par value - 500,000 shares authorized;
150,000 shares issued and outstanding
in 2001 and 2002 7,944,082 8,817,070
Common stock, $.001 par value - 75,000,000
shares authorized; 28,263,058 shares
issued and outstanding in 2001 and 28,263 28,389
28,389,484 issued and outstanding in 2002
Additional paid-in capital 37,693,098 37,071,721
Accumulated deficit (38,069,082) (40,708,586)
Accumulated other comprehensive income
(loss) - cumulative translation adjustment (449,273) (267,885)
------------ ------------
Total stockholders' equity 7,147,088 4,940,709
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,450,996 $ 12,864,227
============ ============
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2001 2002 2001 2002
---- ---- ---- ----
Net revenues $ 4,788,409 $ 5,127,401 $ 20,696,011 $ 15,310,082
Cost of goods sold 2,348,403 2,067,273 8,047,306 5,942,293
------------ ------------ ------------ ------------
Gross profit 2,440,006 3,060,128 12,648,705 9,367,789
Operating costs:
Sales and marketing (exclusive of
$(57,471)and $(38,854) for the three and nine
months ended September 30, 2001, respectively, and
$(16,310) and $(7,694) for the three and nine months
ended September 30, 2002, respectively, reported below
as non-cash compensation, (recovery)) 3,651,467 1,834,729 10,580,742 6,039,813
Research and development 1,453,677 749,344 4,448,836 2,327,670
General and administrative (exclusive of
$(131,580) and $(88,956) for the three and nine
months ended September 30, 2001, respectively, and
$(53,076) and $(25,028) for the three and nine months
ended September 30, 2002, respectively, reported below
as non-cash compensation, (recovery)) 1,547,798 1,238,282 4,419,552 3,178,221
Non-cash compensation (recovery) (189,051) (69,386) (127,810) (32,722)
------------ ------------ ------------ ------------
Total operating costs 6,463,891 3,752,969 19,321,320 11,512,982
Operating income (loss) (4,023,885) (692,841) (6,672,615) (2,145,193)
Interest income (expense), net 558,002 (45,109) 765,964 (238,441)
Other income (expense), net 61,982 (70,932) 134,532 (115,598)
------------ ------------ ------------ ------------
Income (loss) before income taxes (3,403,901) (808,882) (5,772,119) (2,499,232)
Provision for income taxes 175,633 - 369,163 140,272
------------ ------------ ------------ ------------
Net loss (3,579,534) (808,882) (6,141,282) (2,639,504)
Preferred stock accretion (290,996) (290,996) (872,988) (872,988)
------------ ------------ ------------ ------------
Net loss available to common shareholders $ (3,870,530) $ (1,099,878) $ (7,014,270) $ (3,512,492)
============ ============ ============ ============
Basic and diluted net loss per common
share $ (0.14) $ (0.04) $ (0.25) $ (0.12)
============ ============ ============ ============
Weighted average common shares
outstanding 28,260,558 28,389,484 28,137,691 28,333,449
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -----------------------------
2001 2002 2001 2002
---- ---- ---- ----
Net loss $ (3,579,534) $(808,882) $ (6,141,282) $ (2,639,504)
Other comprehensive income (loss) -
cumulative translation adjustment 255,044 85,310 (156,935) 181,388
------------ --------- ------------ ------------
Comprehensive income (loss) $ (3,324,490) $(723,572) $ (6,298,217) $ (2,458,116)
============ ========= ============ ============
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2001 2002
---- ----
Cash flows from operating activities:
Net loss $ (6,141,282) $ (2,639,504)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,114,260 1,035,629
Non-cash compensation expense (recovery) (127,810) (32,722)
Changes in assets and liabilities,
net of effects of acquisitions:
Accounts receivable, net 2,529,151 (821,434)
Inventories, net (1,112,919) 997,275
Prepaid expenses 69,070 (16,203)
Deferred income taxes - 83,000
Other current assets (270,700) 332,209
Accounts payable (389,026) (1,274,443)
Deferred revenue (466,384) (461,522)
Accrued expenses (1,060,350) (499,867)
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Net cash provided by (used in) operations (4,855,990) (3,297,582)
------------- -------------
Cash flows from investing activities:
Acquisition of Identikey, Ltd. 141,156 (23,362)
Other assets (95,427) (2,867)
Disposition of assets - 107,765
Additions to property and equipment (817,519) (415,371)
------------- -------------
Net cash provided by (used in) investing activities (771,790) (333,835)
------------- -------------
Cash flows from financing activities:
Repayment of debt (249,096) (154,453)
Proceeds from exercise of stock options/warrants 32,857 -
------------- -------------
Net cash provided by (used in) financing activities (216,239) (154,453)
Effect of exchange rate changes on cash (152,267) 181,388
------------- -------------
Net increase (decrease) in cash (5,996,286) (3,604,482)
Cash, beginning of period 13,832,645 6,342,440
------------- -------------
Cash, end of period $ 7,836,359 $ 2,737,958
============= =============
Supplemental disclosure of cash flow information:
Interest paid $ 211,856 $ 113,215
Income taxes paid $ 120,535 $ -
Common stock issued in connection with acquisition $ 1,903,366 $ 284,459
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of VASCO Data Security International, Inc. and its subsidiaries
(collectively, the "Company" or "VASCO") and have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the audited
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements, and include all adjustments, consisting only
of normal recurring adjustments, necessary for the fair presentation of the
results of the interim periods presented. All significant intercompany accounts
and transactions have been eliminated. The operating results for the interim
periods presented are not necessarily indicative of the results expected for a
full year.
NOTE 2- GOODWILL AND OTHER INTANGIBLE ASSETS
During the first quarter of 2002, VASCO implemented SFAS No. 142,
"Goodwill and Other Intangible Assets", which replaced the requirements to
amortize intangible assets with indefinite lives and goodwill with a requirement
for an impairment test. SFAS 142 also established requirements for identifiable
intangible assets. As a result, during the first quarter VASCO reclassified
$1,222,898 of intangible assets into goodwill. Operating income for the first
nine months of 2001 includes $137,468 of amortization of goodwill and other
intangible assets that are not included in 2002 results, because of the
implementation of SFAS No. 142.
Intangible asset data as of September 30, 2002 is as follows:
Gross Carrying Accumulated
Amount Amortization
------ ------------
Amortized intangible assets -
Current technology $ 5,455,609 $ 3,401,569
Unamortized intangible assets - Goodwill $ 1,222,898 $ 972,931
Aggregate amortization expense -
For the nine months ended September 30, 2002 $ 405,807
Estimated amortization expense for the year ended:
December 31, 2002 $ 548,637
December 31, 2003 532,355
December 31, 2004 319,186
December 31, 2005 319,186
Net loss would have been $137,468 lower and basic and diluted loss per
share would have decreased $.01 for the nine months ended September 30, 2001, if
SFAS 142 had been implemented at the beginning of that period. For the three
months ended September 30, 2001, net loss would have been $45,823 lower and
diluted loss per share would not have changed, if SFAS 142 had been implemented
at the beginning of that period.
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NOTE 3 - ACQUISITION
On March 29, 2001, VASCO acquired approximately 90% of the outstanding
capital stock of Identikey, Ltd. in exchange for 366,913 shares of Company
common stock. In May 2002, VASCO acquired approximately 9.7% of the outstanding
stock of Identikey, Ltd. in exchange for 126,426 shares of Company common stock
and approximately $23,000 in cash. The value of the stock and cash exchanged for
these shares in May 2002 was approximately $308,000. The Company intends to
acquire the remaining shares outstanding during the fourth quarter of 2002.
NOTE 4 - INVENTORIES
Inventories, consisting principally of hardware and component parts, are
stated at the lower of cost or market. Cost is determined using the
first-in-first-out (FIFO) method.
Inventories are comprised of the following:
December 31, September 30,
2001 2002
------------ -------------
Component parts $ 412,921 $ 315,494
Work-in-process and finished goods 1,599,646 699,798
------------ -------------
Total $ 2,012,567 $ 1,015,292
============ =============
NOTE 5 - IMPACT OF ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and for the
associated asset retirement costs. SFAS 143 must be applied starting with fiscal
years beginning after June 15, 2002. Management is currently evaluating the
impact that the adoption of SFAS 143 will have on the consolidated financial
statements.
In June 2002, the FSAB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF 94-3, a liability for an exit cost
was recognized at the date of an entity's commitment to an exit plan. SFAS 146
also establishes that the liability should initially be measured and recorded at
fair value. The Company will adopt the provisions of SFAS 146 for exit or
disposal activities that are initiated after December 31, 2002. The adoption of
SFAS 146 will not have an impact on the Company's historical consolidated
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
VASCO designs, develops, markets and supports open standards-based hardware
and software security systems which manage and secure access to data.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q, including the "Management's Discussion
and Analysis of Financial Condition and Results of Operations," contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 concerning, among other things, the prospects,
developments and business strategies for the Company and its operations,
including the development and marketing of certain new products and the
anticipated future growth in certain markets in which the Company currently
markets and sells its products or anticipates selling and marketing its products
in the future. These forward-looking statements (i) are identified by their
-8-
use of such terms and phrases as "expected," "expects," "believe," "believes,"
"will," "anticipated," "emerging," "intends," "plans," "could," "may,"
"estimates," "should," "objective," and "goals" and (ii) are subject to risks
and uncertainties and represent the Company's present expectations or beliefs
concerning future events. The Company cautions that the forward-looking
statements are qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, including (a)
risks of general market conditions, including demand for the Company's products
and services, competition and price levels and the Company's historical
dependence on relatively few products, certain suppliers and certain key
customers, and (b) risks inherent to the computer and network security industry,
including rapidly changing technology, evolving industry standards, increasing
numbers of patent infringement claims, changes in customer requirements, price
competitive bidding, changing government regulations and potential competition
from more established firms and others. Therefore, results actually achieved may
differ materially from expected results included in, or implied by these
statements.
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30,
2001
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements for the three and nine months
ended September 30, 2002 and 2001.
Revenues
Revenues for the three months ended September 30, 2002 were $5,127,000, an
increase of $339,000, or 7%, as compared to the three months ended September 30,
2001. The increase is primarily due to increased sales to the Corporate Network
Access market through VASCO's reseller channel. Geographically, 15% of revenues
in the third quarter of 2002 were from the U.S. with 85% from outside the U.S.,
primarily Europe and Asia Pacific. In the third quarter of 2001, 12% of revenues
were from the U.S. with 88% from outside the U.S., primarily Europe.
For the nine months ended September 30, 2002, revenues were $15,310,000, a
decrease of $5,386,000, or 26%, as compared to the same period last year. The
decline is primarily a result of the challenging sales environment in the
Company's banking segment and the reduction in new sales of VACMAN Enterprise
partially offset by increased sales to the Corporate Network Access market.
Customers in the Company's banking segment continue to delay purchase decisions.
The decline in new sales of the VACMAN Enterprise (also known as SnareWorks and
which provides security for large enterprises using mainframe and client-server
applications) is a direct result of the decreased investment in sales and
marketing expenses targeted to this customer segment. Even though sales in the
Corporate Network Access market are higher than the prior year, sales into this
market has been affected by the overall reduction in spending on technology.
Geographically, 15% of revenues for the nine months ended September 30, 2002
were from the U.S. with 85% from outside the U.S. For the nine months ended
September 30, 2001, 25% of revenues were from the U.S. with 75% from outside the
U.S.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 2002 was
$2,067,000, a decrease of $281,000, or 12%, as compared to the three months
ended September 30, 2001. The improvement reflected lower costs in the Digipass
product line.
For the nine months ended September 30, 2002, cost of goods sold was
$5,942,000, a decrease of $2,105,000 or 26%, as compared to the same period last
year. The decline in cost of goods sold was directly related to the reduction in
revenues.
Gross Profit
The Company's gross profit for the three months ended September 30, 2002
was $3,060,000 an increase of $620,000 or 25%, as compared to the three months
ended September 30, 2001. Gross profit as a percentage of net revenue was 60%
for the quarter ended September 30, 2002, as compared to 51% for the same period
of 2001. The increase in gross profit in absolute dollars and as a percentage of
revenue reflected the increase in sales to the Corporate Network Access market,
which has a higher margin percentage than sales to the banking market, and the
overall reduction in Digipass costs.
-9-
Gross profit for the nine months ended September 30, 2002, was $9,368,000,
a decrease of $3,281,000 or 26% compared to the same period last year. The
decline in gross profit is directly related to the reduction in net revenue. As
a percentage of net revenue, gross profit was approximately 61% in both years.
Gross profit as a percentage of net revenue remained constant as gross profit
from VACMAN Enterprise revenues has been offset by the increase in Corporate
Network Access as a percentage of total revenue, the increase in VACMAN Server
revenues and the lower cost of Digipass product.
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended September 30, 2002
were $1,835,000, a decrease of $1,817,000, or 50%, over the three months ended
September 30, 2001. The reduction of expense reflects the reduction in sales and
marketing headcount from 82 at September 30, 2001 to 49 at September 30, 2002.
The reduction in headcount is primarily related to the elimination of sales and
marketing activities related to the VACMAN Enterprise product line.
Additionally, reductions in advertising, public relations, and trade shows
contributed to this decline.
For the nine months ended September 30, 2002, sales and marketing expenses
were $6,040,000, a decrease of $4,541,000, or 43% compared to 2001, for the same
reasons as outlined above.
Research and Development
Research and development costs for the three months ended September 30,
2002 were $749,000, a decrease of $704,000, or 48%, as compared to the three
months ended September 30, 2001. The Company has consolidated its research and
development centers, reducing headcount from 45 to 19.
For the nine months ended September 30, 2002, research and development
expenses totaled $2,328,000, a decrease of $2,121,000, or 48%, as compared to
the same period last year.
General and Administrative Expenses
General and administrative expenses for the three months ended September
30, 2002 were $1,238,000, a decrease of $310,000, or 20%, compared to the three
months ended September 30, 2001. This decrease was principally due to headcount
reduction from 26 to 11. Also contributing to this decrease were reduced
depreciation and amortization expenses related to the assets written off at the
end of last year, and reduced costs to support a smaller world-wide
infrastructure.
For the nine months ended September 30, 2002, general and administrative
expenses were $3,178,000, a decrease of $1,242,000, or 28% compared to the same
period last year primarily due to the aforementioned headcount reduction.
Interest Expense, Net
Net interest expense for the three months ended September 30, 2002 was
$45,000, compared to net interest income of $558,000 for the same period in
2001. This change was due to a reduction of invested cash balances.
For the nine months ended September 30, 2002, net interest expense was
$238,000, compared to net interest income of $766,000 for the same period last
year. This change was due primarily to a reduction of invested cash balances.
-10-
Other Expense, Net
Other expense, net for the three months ended September 30, 2002 was
$71,000 compared to other income of $62,000 for the same period in 2001. The
change was due primarily to changes in exchange rates.
For the nine months ended September 30, 2002, other expense, net was $116,000,
compared to other income, net of $135,000 for the same period last year. The
change was due primarily to changes in exchange rates.
Income Taxes
No income tax expense or benefit was recorded for the three months ended
September 30, 2002. No benefit was recorded to offset the pretax loss as
realization of the benefit from the additional loss is not assured. Income tax
expense of $140,000 for the nine months ended September 30, 2002 is composed of
$57,000 related to foreign operations and $83,000 related to the write-off of a
deferred tax asset in the United States.
Income tax expense of $176,000 and $369,000 for the three and nine months ended
September 30, 2001, respectively, relate to foreign operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $2,738,000 at September 30,
2002, which is a decrease of approximately $3,604,000 from $6,342,000 at
December 31, 2001. As of September 30, 2002, the Company had working capital of
$4,612,000 compared with $6,661,000 at December 31, 2001.
The Company has an overdraft agreement with a European bank pursuant to
which the bank will provide funding in a maximum amount equal to 80% of VASCO's
Belgium subsidiary's defined receivables. As of September 30, 2002,
approximately $1,960,000 was available under that agreement. The agreement does
not have a fixed term and can be terminated by the bank without cause with 30
days notice. Should the Company continue to operate at a loss, the bank could
terminate the agreement and, as a result, the Company would need to obtain
additional financing. There is no assurance that such financing would be
available. Additionally, the Company continues to evaluate its options to reduce
expenses by consolidating operations where efficiencies can be gained and
eliminating expenses related to non-essential activities.
The Company's term loan of $3.4 million due September 30, 2003, will be
classified as a current liability in the fourth quarter of 2002.
Capital expenditures during the first nine months of 2002 were $415,000 and
consisted primarily of computer equipment and office furniture and fixtures.
For the three months ended September 30, 2002, the Company recorded an
operating loss before non-cash recovery for stock options granted to certain
officers of the Company of $762,000 and a net loss before these option grants of
$878,000. The Company had a loss before non-cash recovery, interest, taxes
depreciation and amortization of $514,000.
For the nine months ended September 30, 2002, the Company recorded an
operating loss before non-cash recovery for stock options granted to certain
officers of the Company of $2,178,000 and a net loss before these option grants
of $2,672,000. The Company has a loss before non-cash recovery, interest, taxes,
depreciation and amortization of $1,258,000.
The Company may seek acquisitions of businesses, products and technologies
that are complementary or additive to those of the Company. While from time to
time the Company engages in discussions with respect to potential acquisitions,
there can be no assurance that any such acquisitions will be made.
-11-
In July 2002, the Company was notified that effective November 1, 2002, The
Nasdaq Stock Market, Inc. would be implementing its new minimum stockholders'
equity requirement of $10,000,000 for continued listing on the Nasdaq National
Market. The notification further stated that the Company's current shareholders'
balance was not adequate to meet the new standard and indicated that the Company
would receive a formal written notification of a deficiency if public filings
after November 1, 2002 did not reflect the new minimum standard. At the present
time, the Company's stockholders' equity balance does not meet the new standard
and the Company expects to receive a notice of deficiency from The Nasdaq Stock
Market, Inc. Once the notice is received, the Company expects that it will make
application for a transfer of the listing to the Nasdaq SmallCap Market.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
nine month period ended September 30, 2002. For additional information, refer to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures that is
designed to ensure that information required to be disclosed by the Company in
this Form 10-Q, and in other reports required to be filed under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported within the
time periods specified in the rules and forms for such filings. Management of
the Company, under the direction of the Company's Chief Executive Officer and
Chief Financial Officer, reviewed and performed an evaluation of the
effectiveness of the Company's disclosure controls and procedures within 90 days
prior to filing this quarterly report (the "Evaluation Date"). Based on that
review and evaluation, the Chief Executive Officer and Chief Financial Officer,
along with other key management of the Company, have determined that the
disclosure controls and procedures were and are effective as designed to ensure
that material information relating to the Company and its consolidated
subsidiaries would be made known to them on a timely basis.
Changes in Internal Controls
There were no significant changes in the Company's internal controls or other
factors that could significantly affect these controls subsequent to the
Evaluation Date.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On March 13, 2002, a suit was filed by ActivCard, S.A., against the
Company in the United States District Court, District of Delaware, claiming
patent infringement, false designation or origin and trade dress infringement.
The case is currently being evaluated by the Company and its legal counsel. The
Company believes the suit is without merit. As the suit is in its early stages,
management is unable to estimate the effect of this suit on the Company at this
time.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
-12-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
On July 16, 2002 the Shareholders of the Company entitled to vote thereon
elected the following individuals as Directors of the Company (total shares
eligible to vote were 28,389,484; total shares voted were 20,694,351):
- ------------------------------------------------------------------------------
Name For Against Abstain
- ------------------------------------------------------------------------------
T. Kendall Hunt 20,143,604 - 550,747
Mario Houthooft 20,142,804 - 551,547
Michael Cullinane 20,149,554 - 544,797
Michael Mulshine 20,133,716 - 560,635
Christian Dumolin 20,149,554 - 544,797
Chris LeBeer 20,149,654 - 544,697
There were 4,475,159 broker non-votes for the matter.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS:
EXHIBIT 99.1 STATEMENT UNDER OATH OF PRINCIPAL EXECUTIVE OFFICER DATED
NOVEMBER 14, 2002.
EXHIBIT 99.2 STATEMENT UNDER OATH OF PRINCIPAL FINANCIAL OFFICER DATED
NOVEMBER 14, 2002.
REPORTS ON FORM 8-K: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on November 14, 2002.
VASCO Data Security International, Inc.
/s/ MARIO R. HOUTHOOFT
----------------------------------------
Mario R. Houthooft
Chief Executive Officer and President
/s/ CLIFFORD K. BOWN
----------------------------------------
Clifford K. Bown
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer
-13-
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND SECURITIES AND EXCHANGE COMMISSION RELEASE 34-46427
I, Mario R. Houthooft, the principal executive officer of VASCO Data Security
International, Inc., certify that:
1. I have reviewed this quarterly report on Form 10Q of VASCO Data Security
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(b) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 14, 2002 /s/ MARIO R. HOUTHOOFT
----------------------------------
Mario R. Houthooft
Chief Executive Officer and
President and Director
(Principal Executive Officer)
-14-
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND SECURITIES AND EXCHANGE COMMISSION RELEASE 34-46427
I, Clifford K. Bown, the principal financial officer of VASCO Data Security
International, Inc., certify that:
1. I have reviewed this quarterly report on Form 10Q of VASCO Data Security
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent function):
(a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in The registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ CLIFFORD K. BOWN
November 14, 2002 ------------------------------------
Clifford K. Bown
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
-15-