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 March 31, 2002.
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.
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(Exact name of registrant as specified in its charter)
Delaware 04-3320515
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Porter Road, Littleton, MA 01460
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 952-2200
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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 May 6, 2002
----------------------------------- --------------------------
Common stock, $.001 par value 19,910,159
1
VIISAGE TECHNOLOGY, INC.
FORM 10 - Q FOR THE QUARTER ENDED MARCH 31, 2002
INDEX
Page
----
Facing Sheet ........................................................................... 1
Index .................................................................................. 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets as of March 31, 2002 and December 31, 2001 .................. 3
Statements of Operations for the three months
ended March 31, 2002 and April 1, 2001 ..................................... 4
Statements of Cash Flows for the three months
ended March 31, 2002 and April 1, 2001 ..................................... 5
Notes to Financial Statements .............................................. 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................................ 9
Item 3 - Quantitative and Qualitative Disclosure about Market Risk ................... 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ........................................................... 13
Item 2 - Changes in Securities ....................................................... 13
Item 3 - Defaults by the Company on its Senior Securities ............................ 13
Item 4 - Submission of Matters to a Vote of Security Holders ......................... 13
Item 5 - Other Information ........................................................... 13
Item 6 - Exhibits and Reports on Form 8-K ............................................ 13
SIGNATURES ............................................................................. 14
2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VIISAGE TECHNOLOGY, INC.
Condensed Balance Sheets
(in thousands)
March 31, *December 31,
2002 2001
---------------- -------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 14,804 $ 20,662
Accounts receivable 6,361 4,821
Costs and estimated earnings in excess of billings 25,912 23,331
Other current assets 508 302
---------------- ------------
Total current assets 47,585 49,116
Property and equipment, net 16,990 18,178
Other assets 3,903 369
---------------- ------------
$ 68,478 $ 67,663
================ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 7,396 6,724
Current portion of project financing 4,261 4,277
---------------- ------------
Total current liabilities 11,657 11,001
Project financing 9,272 10,368
---------------- ------------
Total liabilities 20,929 21,369
Shareholders' equity 47,549 46,294
---------------- ------------
$ 68,478 $ 67,663
================ ============
* Derived from audited financial statements.
The accompanying notes are an integral part of these financial
statements.
3
Viisage Technology, Inc.
Statements of Operations
(in thousands, except per share data)
(Unaudited)
Three Months Ended
-------------------------------------
March 31, April 1,
2002 2001
--------------- ---------------
Revenues $ 6,399 $ 6,368
Project costs 5,085 4,721
--------------- ---------------
Project margin 1,314 1,647
--------------- ---------------
Operating expenses:
Sales and marketing 862 153
Research and development 506 449
General and administrative 597 520
--------------- ---------------
Total operating expenses 1,965 1,122
--------------- ---------------
Operating income (loss) (651) 525
Interest expense 206 307
--------------- ---------------
Income (loss) before income taxes (857) 218
Provision for income taxes - -
--------------- ---------------
Net income (loss) (857) 218
Preferred stock dividend - 5
--------------- ---------------
Net income (loss) applicable to common shareholders $ (857) $ 213
=============== ===============
Net income (loss) per basic share $ (0.04) $ 0.01
=============== ===============
Basic shares 19,822 15,488
=============== ===============
Net income (loss) per diluted share $ (0.04) $ 0.01
=============== ===============
Diluted shares 19,822 15,966
=============== ===============
The accompanying notes are an integral part of these financial statements.
4
VIISAGE TECHNOLOGY, INC.
Statements of Cash Flows
(in thousands)
(Unaudited)
Three Months Ended
----------------------------
March 31, April 1,
2002 2001
------------ ----------
Cash Flows from Operating Activities:
Net income (loss) $ (857) $ 218
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities, net of effects
of acquisitions:
Depreciation and amortization 1,558 1,462
Directors fees paid in common stock 65 68
Change in operating assets and liabilities:
Accounts receivable (957) (639)
Costs and estimated earnings in excess of billings (2,257) (1,840)
Other current assets (271) (8)
Accounts payable and accrued expenses 783 1,023
------------ ----------
Net cash provided by (used for) operating activities (1,936) 284
------------ ----------
Cash Flows from Investing Activities:
Additions to property and equipment (568) (16)
Cash paid for an acquisition (2,422) -
Increase in other assets (15) -
------------ ----------
Net cash provided by (used for) investing activities (3,005) (16)
------------ ----------
Cash Flows from Financing Activities:
Net revolving credit borrowings - 639
Principal payments on project financing (1,112) (1,082)
Net proceeds from issuance of common stock 195 175
------------ ----------
Net cash used for financing activities (917) (268)
------------ ----------
Net decrease in cash and cash equivalents (5,858) -
Cash and cash equivalents, beginning of period 20,662 -
------------ ----------
Cash and cash equivalents, end of period $ 14,804 $ -
============ ==========
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 162 $ 296
============ ==========
Non Cash Activities:
Directors fees paid in common stock $ 65 $ 270
============ ==========
Services paid in common stock $ 320 $ -
============ ==========
Net assets acquired from Lau Technologies $ 1,598 $ -
============ ==========
Conversion of preferred stock to common stock $ - $ 1,000
============ ==========
The accompanying notes are an integral part of these financial statements
5
VIISAGE TECHNOLOGY, INC.
Notes To Financial Statements
1. DESCRIPTION OF BUSINESS
Viisage Technology, Inc. (Viisage or the Company) is a leader in the emerging
field of biometrics technology and in providing digital identification systems
and solutions. The Company focuses on identification solutions that improve
personal convenience and security, deter fraud, and reduce identification
program costs. Viisage combines its systems integration and software design
capabilities with its proprietary software and hardware products and other
industry standard products to create complete customized solutions. These
turnkey solutions integrate image and data capture, create relational databases,
incorporate multiple biometrics and improve customers' ability to move and
manage information. Applications can include driver's licenses, voter
registration, national identification cards, law enforcement, social services,
access control and PC network and Internet access security. Viisage's primary
customers have been government agencies with particular penetration in
Departments of Motor Vehicles. The Company has captured approximately 30% of the
domestic driver's license market. Viisage products annually produce more than 25
million identification documents at more than 1,200 locations in 15 states. The
Company has also provided services under subcontracts for projects in Jamaica,
the Philippines and for the U.S. Immigration and Naturalization Service.
Originally developed at MIT, face-recognition technology is widely recognized as
the most convenient, non-intrusive and cost-effective biometric available.
Viisage's patented face-recognition technology is focused on five major product
application areas.
FaceEXPLORER(TM), Viisage's technology for image retrieval and analysis, is
recognized for its leadership technology performance in real-time and
large-database applications. FaceEXPLORER is deployed in the world's largest
face-recognition application with a database of more than 9 million enrolled
images and growing by 15,000 new images per day. The product family of
face-recognition applications also includes: FaceNET(TM) for Internet and
e-commerce security; FacePIN(TM) for point-of-sale transactions verification;
FacePASS(TM) used for physical access control and keyless entry and
FaceFINDER(TM) for surveillance and identification.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial data as of March 31, 2002 and December 31, 2001, and
for the three month periods ended March 31, 2002 and April 1, 2001, have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The December 31, 2001 balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
The financial statements as of and for the three months ended March 31, 2002
include the assets and liabilities of Biometrica Systems, Inc. ("Biometrica") as
of March 31, 2002 and the results of its operations and its cash flows from
March 18, 2002 (date of acquisition) to March 31, 2002. All intercompany
accounts and transactions have been eliminated in consolidation (see Note 6).
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows as of March 31, 2002 and for the three
month periods
6
ended March 31, 2002 and April 1, 2001, have been made. The results of
operations for the period ended March 31, 2002 are not necessarily indicative of
the operating results for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Computation of Net Income (Loss) per Share
The basic net income (loss) per share calculation is computed based on the
weighted average number of shares of common stock outstanding during the period.
The impact of approximately 3,532,000 shares of common stock consisting of
certain outstanding options and stock warrants were not reflected in the March
31, 2002 dilutive net loss per share calculation. The impact of approximately
2,445,000 shares of common stock consisting of certain outstanding options and
stock warrants were not reflected in the April 1, 2001 dilutive net income per
share calculation. Potentially dilutive securities are excluded from the
calculation of diluted earnings per share if their effect is anti-dilutive.
3. INCOME TAXES
No provision for income taxes has been made in the three-month periods in fiscal
2002 and 2001 due to the net loss in 2002 and the available net operating loss
carry forwards in 2001.
4. RELATED PARTY TRANSACTIONS AND SHAREHOLDERS' EQUITY
Currently, Lau Technologies ("Lau") owns approximately 32% of the Company's
common stock. Readers are referred to the "Notes to Financial Statements"
section of the Company's 2001 Annual Report on Form 10-K for further discussion
(see Note 6).
5. BUSINESS SEGMENTS
The Company is engaged in one business, the development and implementation of
digital identification systems and solutions. The Company has an integrated
business model: identification solutions through system integration systems and
biometric software. Previously the Company reported two business segments,
however the Company's current mission is to design, develop and deliver
integrated identification solutions. Substantially all of the Company's revenues
have been derived within the United States.
Substantially all of the Company's revenues are currently derived by its systems
integration and identification card division from contracts with public sector
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 three months ended March 31, 2002 and April 1,
2001, four and three customers each accounted for more than 10% of the Company's
revenues and an aggregate of approximately 49% and 44%, respectively, of
revenues for the period.
6. ACQUISITIONS
On January 10, 2002, Viisage acquired the assets of Lau Security Systems, a
division of Lau Technologies, including all of its intellectual property,
contracts and distribution channels. The intellectual property acquired from Lau
included,
7
among other things, thirty-one U.S. or foreign patent grants or applications for
inventions relating to facial recognition technologies or the production of
identification cards, the patent acquired by Lau from Daozeng Lu and Simon Lu
for verifying the identity of an individual using identification parameters
carried on an escort memory, and numerous invention disclosures that are being
considered for patent application. The transaction also included an exclusive
license of Lau's rights to use the patented facial recognition technology it
licensed from MIT for use in the federal access control field. As a result of
this transaction, certain obligations on the part of Viisage to license
intellectual property to Lau were terminated. The Company agreed to pay Lau a
royalty of 3.1% of the facial recognition revenues over the next twelve and a
half years, up to a maximum of $27.5 million and assume certain liabilities
related to the acquired business. The assets have been recorded based on a
historical cost basis. The estimated excess of the assets acquired over
liabilities assumed has been recorded as additional paid in capital. A final
valuation of the assets has not been completed.
On March 18, 2002, Viisage acquired the capital stock of Biometrica
Systems, Inc. ("Biometrica"), a former licensee and distributor of Viisage's
facial recognition technologies in the casino market for approximately $2.4
million in cash. Biometrica's assets included, among other things, intellectual
property relating to the BiometriCam, a compact camera with built-in facial
recognition software. The acquisition was accounted for as a purchase, and
accordingly, the operations of Biometrica are included in the financial
statements since the effective date, the close of business on March 18, 2002.
The purchase price has been allocated to net assets acquired based on their
estimated fair values. The excess of the purchase price over net assets acquired
has been allocated to Goodwill for approximately $2.4 million. A final appraisal
of certain assets acquired has not been completed. Pending the results of the
appraisal the allocation of the purchase price might change. However, any change
would not have a material effect on the financial position or results of
operations of the Company. Results of operations of Biometrica for the period
March 19, 2002 to March 31, 2002 were not material.
8
VIISAGE TECHNOLOGY, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and accompanying notes contained in the Company's 2001
Annual Report on Form 10-K and in this Form 10-Q.
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.
CRITICAL ACCOUNTING POLICIES
The Company considers the following accounting policies critical to its results
of operations and financial condition:
- Contract Revenue and Cost Recognition
The Company provides services principally under contracts that provide
for a fixed price for each system and/or for each identification card
produced. Revenue is recognized using the percentage of completion
method based on labor costs incurred and/or cards produced. Contract
losses, if any, are recognized in the period in which they become
determinable. Costs and estimated earnings in excess of billings are
recorded as a current asset. Billings in excess of costs and estimated
earnings and accrued contract costs are recorded as current
liabilities. Generally, contracts provide for billing when contract
milestones are met and/or cards are produced. These contracts are
typically long term contracts, typically five years or longer. The
values of these contracts are based on estimates of volume for
identification cards to be produced. Any significant reductions in
volume will have a negative impact on the Company's financial
condition. Volumes can be impacted by legislative changes to the life
of the identification credentials; lack of government funding;
termination of contract for lack of performance. Management reviews the
historical trends of card productions quarterly to estimate the volumes
that are to be used to calculate contract values.
- Cost estimating and Contract Accounting
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 Company, on a quarterly basis, estimates the
cost to complete on each contract by reviewing the performance against
budgets that are established during the quoting process. Adjustments
are made to reflect the current information that is available such as:
card volumes; per card consumable costs; ongoing maintenance costs and
site inventory levels. The financial performance of the Company could
be impacted by any negative change in management's estimates and
assumptions that are inherent in contract accounting.
RESULTS OF OPERATIONS
Revenues are derived principally from multi-year contracts for systems
implementation, card production and related services. Revenues for the first
quarter of 2002 were approximately $6,399,000, compared to approximately
$6,368,000
9
for the first quarter of 2001. There was relatively no change in the stream of
revenue generated in the two quarters ended March 31, 2002 and April 1, 2001.
Gross margins decreased to 20.5% in the first quarter of 2002 from 25.9% in the
first quarter of 2001. The decrease in gross margins between the two three-month
periods is due principally to the impact of consolidating the Company's
acquisitions and the delays of anticipated contract awards in 2002 compared to
the prior years first quarter, which included the favorable impact of the voter
registration system in Uganda.
Sales and marketing expenses increased approximately $709,000 in the first
quarter of 2002 from the first quarter of 2001. This represents an increase to
13.5% from 2.4% of revenue for the quarter to quarter period. The increase is
due principally to the Company's continuing efforts in marketing its patented
biometric solutions. The Company continues to increase its distribution and
marketing capabilities for its facial recognition solutions by adding and
certifying new system integrators and reseller partners. This allows the Company
to improve its marketing capabilities while limiting the cost exposure of a
larger direct sales force.
Research and development expenses increased approximately $57,000 in the first
quarter of 2002 from the first quarter of 2001. This represents an increase to
7.9% from 7.1% of revenue for the quarter to quarter period. The increase is due
principally to the Company's continued investment in the biometrics division and
developing new products. Research and development costs do not include amounts
for specific projects that are allocated to project costs.
General and administrative expenses increased by approximately $77,000 in the
first quarter of 2002 from the first quarter of 2001. This represents an
increase to 9.3% from 8.2 % of revenue for the quarter to quarter periods. The
increase in expenses is due principally to the Company's increased rental costs
associated with additional space required to accommodate the headcount increases
from the acquisitions and internal growth.
Interest expense decreased approximately $101,000 in the first quarter of 2002
over the first quarter of 2001. This represents a decrease to 3.2% from 4.8% of
revenue for the quarter to quarter period. This decrease reflects the impact of
the Company's continuing efforts to reduce its overall debt and related interest
expense, as well as the ability to retire a substantial portion of its debt with
the proceeds of the $25 million private placement of common stock in December
2001.
No provision for income taxes has been made in the current period due to the net
loss. No provision was required in the 2001 period due to the availability of
tax loss carry forwards. The Company did not record a tax benefit for the
remaining net operating loss carry forwards due to the uncertainty of whether
such benefit will be realized.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $14.8 million at March 31, 2002, which consisted
entirely of cash. There were no cash or cash equivalents at April 1, 2001.
Accounts receivable increased approximately 32% from December 31, 2001 to March
31, 2002 due to the timing of billings.
Costs and estimated earnings in excess of billings increased approximately 11.1%
from December 31, 2001 to March 31, 2002, and reflect the unbilled accumulation
of costs on contracts in progress.
The Company has a $4.0 million operating line of credit. This revolver is a
sweep account, which is set up to maintain the lowest possible balance on the
revolver by maintaining a zero balance of cash at all times. The line of credit
contains various financial covenants and is collaterized by substantially all of
the Company's assets. As of March 31, 2002, there was no outstanding balance.
10
In February 2001, the revolving credit agreement was amended to provide for a
term note in the amount of $4.0 million related to project financing. The term
note bears interest at 8.00% and is payable in monthly installments of
approximately $83,600, including principal and interest, and matures in March
2006. As of March 31, 2002, the outstanding balance was approximately $3.6
million.
In September 2001, the revolving credit agreement was amended to provide for a
term note in the amount of $3.2 million related to project financing. The term
note bears interest at 6.25% and is payable in monthly installments of
approximately $71,700, including principal and interest, and matures in March
2006. As of March 31, 2002, the outstanding balance was $3.0 million.
The term notes are subject to the same financial covenants as the revolving line
of credit. Upon notice by the lender, the entire principal and accrued interest
can become immediately due and payable following the termination of the revolver
in June 2003. This would result in the acceleration of the then principal
balance of $4.7 million to be due June 2003. The equipment for the specific
project collateralizes the term notes.
Historically, the Company has not made substantial capital expenditures for
facilities, office and computer equipment and has satisfied its needs in these
areas principally through leasing. However, in the first quarter of 2002, the
Company invested $ 0.6 million to furnish and equip additional space needed to
support the Company's projected growth.
The Company also has system project lease financing arrangements with commercial
leasing organizations. Pursuant to these arrangements, the lessor purchases
certain of the Company's digital identification systems and leases them back to
the Company for deployment with identified and contracted customers approved by
the lessor. The lessor retains title to systems and has an assignment of the
Company's rights under the related customer contracts, including rights to use
the software and technology underlying the related systems. Under this
arrangement, the lessor bears the credit risk associated with payments by the
Company's customers, but the Company bears performance and appropriation risk
and is generally required to repurchase a system in the event of a termination
by a customer for any reason except credit default. The Company is also required
to maintain certain financial ratios and minimum levels of tangible capital
funds, as defined. These project lease arrangements are accounted for as capital
leases. At March 31, 2002, the Company had approximately $6.9 million
outstanding under the lease financing arrangements.
For the fiscal year ended December 31, 2001 the existing financial covenants
under the revolving line of credit and two of the project financing arrangements
were amended. Effective for fiscal year ended December 31, 2001 all financial
covenants for these arrangements were eliminated as long as the Company
maintains cash balance greater than the total of the long-term debt and project
financing. The financial covenants of the remaining financing arrangement were
not amended as of December 31, 2001 and the Company was in violation of the
positive net income covenant for the year ended December 31, 2001 and the three
months ended March 31, 2002. Subsequent to December 31, 2001, the Company
received waivers for these covenant violations. The Company believes that it
will be in compliance with the amended debt covenants. However, this expectation
is dependent on achieving the Company's business plan. If the Company does not
meet such covenants, the bank and the lessors could require immediate repayment
of outstanding amounts.
The Company believes that if it meets its business forecast for 2002, cash flows
from available borrowings, project leasing, operations and capital raised will
be sufficient to meet its working capital and capital expenditure needs for the
foreseeable future.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK
Except for the Company's revolving credit facility, which has a variable
interest rate, the Company has no material exposure to market risk that could
affect its future results of operations and financial condition.
11
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in an environment that involves a number of risks, some of
which are beyond the Company's control. Forward-looking statements in this
document and those made from time to time by the Company through its senior
management are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements concerning
future plans or results are necessarily only estimates and actual results could
differ materially from expectations. Certain factors that could that could cause
or contribute to such differences include, among other things:
.. The dependence of our business on large public sector contracts, which can
involve delays.
.. Fluctuations in our quarterly results, which could cause volatility in our
stock price, due to the size and timing of contract awards, the timing of
our contract performance, variations in the mix of our products and
services, and contract losses and changes in management estimates inherent
in accounting for contracts.
.. The loss of any significant customer could cause our revenue to decline.
.. Our history of operating losses.
.. Volatility in the market for our common stock, due to technological
innovation by our competitors or us, general market conditions or market
conditions specific to particular industries, changes in earnings estimates
by analysts, and other factors.
.. Our leverage, which creates financial and operating risk that could limit
the growth of our business.
.. Our potential inability to obtain additional capital required for funding
our operations and financing our growth.
.. Our reliance on sole and single-source suppliers, which could cause delays
or increases in project costs.
.. Our ability to successfully expand our direct sales and services
organizations, so that we may increase our sales and support our customers.
.. The loss of any key personnel, or the failure to attract and retain
additional personnel, without whom we may be unable to continue expanding
our business and product line.
.. Customer acceptance of our biometric technologies, without which our growth
may be restricted.
.. Our ability to keep pace with changing technologies, so that we may win new
customers.
.. System failures, which could seriously damage our business.
.. Competition from new entrants and bigger, more established competitors with
greater financial resources, which could diminish our business
opportunities and limit our growth.
.. Misappropriation of our intellectual property, which could harm our
reputation, adversely affects our competitive position and cost us money.
.. Claims that we infringe on third party intellectual property rights, which
could result in substantial costs, diversion of resources and management
attention, and harm to our reputation.
.. Possible dilution of our stockholders from the exercise of outstanding
stock purchase warrants and stock options.
Any of these factors could have a material adverse impact on the Company's
operations and financial results. The Company cautions the reader that this list
of risk factors may not be complete. The Company undertakes no obligation to
update these forward-looking statements to reflect any future events or
circumstances.
12
VIISAGE TECHNOLOGY, INC.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES
The following transactions occurred prior to the filing of this Form 10-Q with
respect to the Company's capital stock. Each transaction was exempt from the
registration requirements of the Securities Act of 1933 under Section 4(2) or
section 3(a)(9) of the Securities Act.
In January 2002, Windsor Group LLC was issued 40,000 shares of common stock as
compensation for consulting work performed on acquisition opportunities.
In February 2002, Lau Acquisition Corp. exercised its option to purchase 60,000
shares of common stock at an exercise price of $1.90 per share.
ITEM 3 - DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. Form of Option Agreement for the Company's 1996 Management Stock
Option Plan (amended as of April 24, 2002).
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on January 25, 2002, to
report its acquisition of the assets of Lau Security Systems, a division of Lau
Technologies, in consideration of which the Company agreed to pay Lau a royalty
of 3.1% of its facial recognition revenues over the next twelve and a half
years, up to a maximum of $27.5 million, and to assume certain liabilities
related to the acquired business.
13
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: May 10, 2002 By: /s/ Thomas J. Colatosti
-------------------------------
Thomas J. Colatosti
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Milton A. Alpern
-------------------------------
Milton A. Alpern
Chief Financial Officer
(Principal Financial Officer)
By: s/ Sean F. Mack
-------------------------------
Sean F. Mack
Vice President, Controller and Treasurer
(Chief Accounting Officer)
14