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U.S. 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 March 31, 1998
( ) 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 1-13333
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DBT ONLINE, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 85-0439411
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(state or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
5550 W. Flamingo Road, Suite B-5
Las Vegas, Nevada 89103
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(Address of principal executive offices)
(702) 257-1112
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(Registrant's telephone number)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter periods 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
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The number of common shares outstanding as of March 31, 1998 was 18,465,418.
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DBT ONLINE, INC.
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997..................................................................3
Consolidated Statements of Operations for the Three Months Ended March 31, 1998
and 1997...............................................................................4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998
and 1997...............................................................................5
Notes to Consolidated Financial Statements......................................................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................7
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS..............................................................................10
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................................................10
Item 3. DEFAULTS UPON SENIOR SECURITIES................................................................10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................10
Item 5. OTHER INFORMATION..............................................................................10
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................................10
Signature........................................................................................................11
EXHIBITS
Exhibit 27.1 Financial Data Schedule..............................................................E-6
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At March 31, At December 31,
1998 1997
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $11,319,800 $ 7,689,800
Accounts receivable, less allowance: March 31, 1998 -
$341,900; December 31, 1997 - $330,000 5,938,400 4,448,800
Short-term investments 41,516,400 44,207,200
Prepaid expenses and other current assets 1,708,600 1,681,300
Prepaid income taxes 217,300
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Total current assets 60,483,200 58,244,400
Property and equipment, net 11,035,500 9,034,000
Patents, less amortization: March 31, 1998 - $2,741,100; 11,101,700 11,525,400
December 31, 1997 - $2,317,300
Goodwilll, less amortization: March 31, 1998 - $550,700 5,256,600 5,463,100
December 31, 1997 - $344,200
Other assets 394,800 341,600
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TOTAL ASSETS $88,271,800 $84,608,500
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 5,020,100 3,766,600
Due to other patent interest holders 1,206,000 995,200
Income taxes payable 502,500
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Total current liabilities 6,728,600 4,761,800
DEFERRED INCOME TAXES 4,061,300 4,199,600
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value. 5,000,000 shares
authorized; no shares issued or outstanding
Common stock, 40,000,000 shares authorized;
18,465,418 shares and 15,447,612 shares
$.10 par value issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 1,846,600 1,838,900
Additional paid-in capital 68,823,600 68,564,600
Retained earnings 6,811,700 5,243,600
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Total Stockholders' equity 77,481,900 75,647,100
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $88,271,800 $84,608,500
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See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended March 31,
1998 1997
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(Unaudited) (Unaudited)
Revenues $10,710,500 $ 6,081,500
Patent royalties 1,714,400 1,517,500
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Total revenues and royalties 12,424,900 7,599,000
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Cost of revenues 5,575,000 3,270,700
Selling and promotion 1,225,900 593,000
Research and development 663,000 529,700
General and administrative 3,187,200 1,800,300
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Total expenses 10,651,100 6,193,700
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Income from operations 1,773,800 1,405,300
Interest income, net 602,100 31,300
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Income before income taxes 2,375,900 1,436,600
Provision for income taxes 807,800 545,900
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Net income $ 1,568,100 $ 890,700
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Net income per common share (basic) 0.08 0.06
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Weighted average shares outstanding (basic) 18,465,418 15,452,900
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Net income per common share (diluted) 0.08 0.06
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Weighted average shares outstanding (diluted) 19,118,400 16,106,000
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See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended March 31,
1998 1997
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,568,100 $ 890,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,627,200 1,127,500
Deferred taxes (138,300) (21,400)
Changes in operating assets and liabilities;
Accounts receivable and other
receivables (1,489,600) (1,134,200)
Prepaid insurance and expenses (27,300) (39,700)
Accounts payable and accrued
liabilities 1,348,000 1,181,400
Due to other patent interest holders 210,800 (26,100)
Income taxes payable 719,800 (136,600)
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Net cash provided by operating
activities 3,818,700 1,841,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchased (2,998,500) (1,004,100)
Increase in other assets (53,200) (207,300)
Proceeds from maturity of investments 2,690,800
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Net cash used in investing activities (360,900) (1,211,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in bank line-of-credit (200,000)
Proceeds from exercise of stock options 172,200
Repayments on long-term debt (2,781,300)
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Net cash provided by (used in) financing
activities 172,200 (2,981,300)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,630,000 (2,351,100)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,689,800 6,965,600
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,319,800 $ 4,614,500
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See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto, which are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of DBT Online, Inc. (the "Company") and its wholly-owned subsidiaries, Database
Technologies, Inc., a Florida corporation ("DBT"), The Information Connectivity
Group, Inc. (since August 1, 1997, date of acquisition), a Nevada corporation
("ICON") and Patlex Corporation (since August 20, 1996, date of merger), a
Nevada corporation ("Patlex"). The interim consolidated financial statements as
of March 31, 1998 and for the three months ended March 31, 1998 and 1997 are
unaudited. All significant intercompany accounts and transactions have been
eliminated. The accompanying consolidated financial statements reflect all
adjustments which 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. Such adjustments consist solely of normal
recurring accruals. Results for the interim periods are not necessarily
indicative of results for a full year.
NOTE 2. STOCK SPLIT
The Company announced on September 16, 1997, a two-for-one stock split
where the Company would distribute to each shareholder of record on September
26, 1997 one share of Common Stock for each share of Common Stock outstanding.
All share and per share amounts have been restated to give effect to the split.
NOTE 3. ACQUISITION
On August 1, 1997, the Company acquired all of the stock of The
Information Connectivity Group, Inc. for consideration in both cash and stock
totaling approximately $6 million. For accounting purposes, the transaction was
treated as a purchase. The Company recorded goodwill of approximately $5.8
million in connection with this acquisition.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto. This information
contains certain statements regarding future trends, the accuracy of which is
subject to many risks and uncertainties. Such trends, and their anticipated
impact upon the Company, could differ materially from those presented in this
Form 10-Q.
OVERVIEW OF THE COMPANY
The Company is a holding company with businesses that serve the
electronic information and patent enforcement industries. Its electronic
information businesses are on-line providers of integrated database services and
related reports primarily to law enforcement and other government agencies, law
firms, insurance companies and licensed investigation companies. Its patent
enforcement business is engaged in the exploitation and enforcement of two laser
patents and generates its revenues through patent royalties.
ELECTRONIC INFORMATION GROUP
The Electronic Information Group's ("EIG") revenues increased 76% to
$10,710,500 for the quater ended March 31, 1998 from $6,081,500 for the same
period in 1997. Without regard to acquisitions, EIG revenues increased 65%. The
increase in EIG's revenues was attributable to an increase in the number of
active customers and the number of minutes users spent on line. During the first
quarter of 1998, active customers (defined as customers accessing the system in
a given month) increased 62% to approximately 11,000 as of March 31, 1998 from
6,800 as of March 31, 1997. For the quarter ended March 31, 1998, total system
usage increased 60% to 6.9 million minutes, from 4.3 million minutes for the
same period in 1997.
EIG's cost of revenues increased 81% to $5,147,900 for the quarter
ended March 31, 1998 from $2,846,900 in 1997. As a percentage of EIG revenues,
cost of revenues increased to 48.1% from 46.8% in 1997. In addition to the
acquisition of ICON, the dollar increase in the Company's cost of revenues was
due primarily to increases in both purchased data costs and depreciation expense
as EIG continued to invest both in its computer facilities and in the expansion
of its databases. The Company expects this trend to continue.
EIG's selling and promotion expenses increased 107% to $1,225,900 for
the quarter ended March 31, 1998 from $593,000 for the same period in 1997. The
increase was primarily due to the acquisition of ICON and increases in payroll,
advertising and trade show expenses. As a percentage of EIG revenues, selling
and promotion increased to 11.4% in 1998 from 9.8% in 1997.
The EIG's research and development expenses increased 25% to $663,000
for the quarter ended March 31, 1998 from $529,700 for the same period in 1997.
These increases were caused by increases in payroll and related expenses. As a
percentage of EIG's total revenues, research and development expenses decreased
to 6.2% in 1998 from 8.7% in 1996.
EIG's general and administrative expenses increased 86 % to $2,879,800
for the quarter ended March 31, 1998 from $1,545,800 for the same period in
1997. In addition to the acquisition of ICON, the increases were due to
increases in rent, goodwill amortization and payroll and related expenses. As a
percentage of EIG's total revenues, general and administrative expenses
increased to 26.9% in 1998 from 25.4% in 1997.
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PATENT ENFORCEMENT GROUP
Revenues of the Patent Enforcement Group ("PEG") increased 13% to
$1,714,400 for the quarter ended March 31, 1998 from $1,517,500 for the same
period in 1997. PEG's cost of revenues were consistent at $427,100 from $423,800
for the same period in 1997 and consists solely of the amortization of its
patents. The PEG's general and administrative expenses increased to $307,400 for
the quarter ended March 31, 1998 from $254,500 for the same period in 1997.
OPERATING PROFIT
The EIG contributed $793,800 in operating profit for the quarter ended
March 31, 1998 compared to an operating profit of $566,100 for the same period
in 1997. PEG contributed $980,000 in operating profit for the quarter ended
March 31, 1998 compared to $839,200 for the same period in 1997.
On a consolidated basis, the Company's operating profit was $1,773,800
for the quarter ended March 31, 1998 compared to $1,405,300 for the same period
in 1997.
INTEREST INCOME
Net interest income was $602,100 in 1998 compared to 31,300 in 1997.
The increase net interest income is due to the Company's investment earnings on
proceeds from the issuance of common stock in May 1997.
INCOME TAXES
The Company's effective income tax rate was 34% for the quarter ended
March 31, 1998 compared to 38% for the same period in 1997. The 1998 effective
rate was favorably impacted by non-taxable interest income and reduced state
income taxes.
NET INCOME
In 1998 the Company had net income of $1,568,100 compared to $890,700
in 1997. The increase in net income is due to increase in operating profit, the
investment income generated on the proceeds from the issuance of Common Stock in
May, 1997, and the reduced effective income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations was $3,818,700 for the quarter
ended March 31, 1998 compared to $1,841,600 for the same period in 1997. The
Company's capital expenditures of $2,998,500 and $1,004,100 in 1998 and 1997,
respectively, were primarily attributable to the acquisition of computer
equipment for EIG. The Company had working capital at March 31, 1998 of
$53,754,600 (including cash and cash equivalents of $11,319,800) compared to
$53,482,600 (including cash and cash equivalents of $7,689,800) at December 31,
1997. The increase in 1998 was due to the growth of EIG and issuance of Common
Stock in May, 1997.
The Company expects to fund future working capital requirements from
its existing cash and short-term investment balances together with cash
generated from operations. If necessary, other sources of capital available to
the Company may include access to the capital markets and additional bank
borrowings.
INFLATION
The rate of inflation has not had a material impact on the operations of the
Company. Moreover, if inflation remains at its recent levels, it is not expected
to have a material impact on the operations of the Company for the foreseeable
future.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information contained above with respect to the Company's investment in
its computer facilities and the expansion of its databases, and other statements
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations, regarding expected future events and financial results is
forward-looking and subject to risks and uncertainties. Those statements are
forward-looking statements within the meaning of Section 31E of the Securities
Exchange Act of 1934. The following important factors could affect the future
results of the Company and could cause those results to differ materially from
those expressed in the forward-looking statements: (i) the ability to manage
DBT's rapid expansion, (ii) protecting DBT's proprietary technology, (iii)
impact of future government regulation on the availability of public records,
and (iv) the extent, timing and success of competition from other database
providers.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None to report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to report.
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1* Financial Data Schedule
(b) Reports on Form 8-K
None
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* Filed herewith.
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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.
DBT ONLINE, INC.
/s/ TIMOTHY M. LEONARD
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TIMOTHY M. LEONARD
Vice President, Finance, Treasurer
and Chief Financial Officer
(Duly authorized officer and chief
financial officer)
Date: May 13, 1998
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