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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 September 29, 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.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3320515
- ---------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Porter Road, Littleton, MA 01460
- -------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 952-2200
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [_] No
Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) [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 November 8, 2002
---------------------------------- -------------------------------
Common stock, $.001 par value 20,229,475
-1-
VIISAGE TECHNOLOGY, INC.
FORM 10 - Q FOR THE QUARTER ENDED SEPTEMBER 29, 2002
INDEX
Page
----
Facing Sheet ............................................................................ 1
Index ................................................................................... 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets as of September 29, 2002 and December 31, 2001 .............. 3
Statements of Operations for the three months and nine months
ended September 29, 2002 and September 30, 2001 ............................ 4
Statements of Cash Flows for the nine months ended September 29,
2002 and September 30, 2001 ................................................ 5
Notes to Financial Statements .............................................. 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................................ 10
Item 3 - Quantitative and Qualitative Disclosure about Market Risk .................... 13
Item 4 - Controls and Procedures ...................................................... 14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ............................................................ 15
Item 2 - Changes in Securities ........................................................ 15
Item 3 - Defaults by the Company on its Senior Securities ............................. 15
Item 4 - Submission of Matters to a Vote of Security Holders .......................... 15
Item 5 - Other Information ............................................................ 15
Item 6 - Exhibits and Reports on Form 8-K ............................................. 15
SIGNATURES .............................................................................. 16
CERTIFICATIONS .......................................................................... 17
-2-
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VIISAGE TECHNOLOGY, INC.
Condensed Balance Sheets
(in thousands)
September 29, *December 31,
2002 2001
-------------- -------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 6,716 $ 20,662
Accounts receivable 6,770 4,821
Costs and estimated earnings in excess of billings 25,879 23,331
Other current assets 1,010 302
-------------- ------------
Total current assets 40,375 49,116
Property and Equipment, net 14,723 18,178
Other Assets 4,082 369
-------------- ------------
$ 59,180 $ 67,663
============== ============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 5,029 $ 6,724
Current portion of project financing 4,424 4,277
-------------- ------------
Total current liabilities 9,453 11,001
Project Financing 7,020 10,368
-------------- ------------
Total liabilities 16,473 21,369
Shareholders' Equity 42,707 46,294
-------------- ------------
$ 59,180 $ 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 Nine Months Ended
-------------------------- --------------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues $ 8,109 $ 6,116 $ 23,546 $ 19,355
Project costs 6,498 4,233 19,052 14,202
----------- ----------- ----------- -----------
Project margin 1,611 1,883 4,494 5,153
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 1,544 174 4,106 393
Research and development 1,440 568 3,261 1,433
General and administrative 1,230 620 2,964 1,777
----------- ----------- ----------- -----------
Total operating expenses 4,214 1,362 10,331 3,603
----------- ----------- ----------- -----------
Operating income (loss) (2,603) 521 (5,837) 1,550
Interest expense 215 331 644 922
----------- ----------- ----------- -----------
Income (loss) before income taxes (2,818) 190 (6,481) 628
Provision for income taxes - - - -
----------- ----------- ----------- -----------
Net income (loss) $ (2,818) $ 190 $ (6,481) $ 628
=========== =========== =========== ===========
Basic net income (loss) per share $ (0.14) $ 0.01 $ (0.32) $ 0.04
=========== =========== =========== ===========
Basic shares 20,156 16,545 19,981 16,164
=========== =========== =========== ===========
Diluted net income (loss) per share $ (0.14) $ 0.01 $ (0.32) $ 0.04
=========== =========== =========== ===========
Diluted shares 20,156 17,139 19,981 16,629
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
-4-
VIISAGE TECHNOLOGY, INC.
Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
-----------------------------------------------------
Sept. 29, 2002 Sept. 30, 2001
------------------- --------------------
Cash Flows from Operating Activities:
Net income (loss) $ (6,481) $ 628
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities, net of effects
of acquisitions:
Depreciation and amortization 4,702 3,868
Directors fees paid in common stock 275 216
Change in operating assets and liabilities:
Accounts receivable (1,432) (1,239)
Costs and estimated earnings in excess of billings (2,146) (86)
Other current assets (604) 174
Accounts payable and accrued expenses (1,583) (1,338)
------------------- --------------------
Net cash provided by (used for) operating activities (7,269) 2,223
------------------- --------------------
Cash Flows from Investing Activities:
Additions to property and equipment (1,157) (4,044)
Cash paid for an acquisition (2,747) -
Change in other assets (501) 104
------------------- --------------------
Net cash used for investing activities (4,405) (3,940)
------------------- --------------------
Cash Flows from Financing Activities:
Proceeds from sale/leaseback of equipment - 5,569
Principal payments on long-term borrowings - (903)
Principal payments on project financing (3,201) (3,000)
Net proceeds from issuance of common stock 929 51
------------------- --------------------
Net cash provided by (used for) financing activities (2,272) 1,717
------------------- --------------------
Net decrease in cash and cash equivalents (13,946) -
Cash and cash equivalents, beginning of period 20,662 -
------------------- --------------------
Cash and cash equivalents, end of period $ 6,716 $ -
=================== ====================
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 742 $ 882
=================== ====================
Non Cash Activities:
Directors fees paid in common stock $ 275 $ 270
=================== ====================
Services paid in common stock $ 320 $ -
=================== ====================
Conversion of convertible debt to common stock $ - $ 65
=================== ====================
Net assets acquired from Lau Technologies $ 1,316 $ -
=================== ====================
Conversion of preferred stock to common stock $ - $ 1,068
=================== ====================
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 31% of the
domestic driver's license market. Viisage products annually produce more than 25
million identification documents at more than 1,200 locations in 16 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 11 million enrolled
images and growing by 8,000 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 September 29, 2002 and December 31, 2001,
and for the three and nine month periods ended September 29, 2002 and September
30, 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.
-6-
The financial statements as of and for the three and nine months ended September
29, 2002 include the assets and liabilities of Biometrica Systems, Inc.
("Biometrica") as of September 29, 2002 and the results of its operations and
its cash flows from March 18, 2002 (date of acquisition) to September 29, 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 September 29, 2002 and for the three
and nine month periods ended September 29, 2002 and September 30, 2001, have
been made. The results of operations for the period ended September 29, 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 3,166,000 shares of common stock consisting of
certain outstanding options and stock warrants were not reflected in the
September 29, 2002 dilutive net loss per share calculation. The impact of
approximately 1,082,000 shares of common stock consisting of certain outstanding
options and stock warrants were included in the September 30, 2001 dilutive net
income per share calculation. The impact of certain options outstanding for
approximately 2,042,000 shares of common stock, the conversion of convertible
subordinated debt, the conversion of convertible preferred stock, and stock
warrants were not reflected in the September 30, 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 and nine 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 31% 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).
-7-
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. 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.
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 September 29, 2002 and September
30, 2001, two customers each accounted for more than 10% of the Company's
revenues and an aggregate of approximately 26% and 23%, respectively, of
revenues for the period. For the nine months ended September 29, 2002 and
September 30, 2001, three customers each accounted for more than 10% of the
Company's revenues and an aggregate of approximately 37% and 35% 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, 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 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 evaluation 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 Company has performed an internal review of the
acquired assets and performed a preliminary allocation of the purchase price.
The Company has recorded approximately $ 141,000 in amortization related to the
acquired intangible assets from the date of the acquisition through September
29, 2002. A final appraisal of the assets acquired has not been completed.
Pending the results of the independent appraisal the allocation of the purchase
price may change. However it is not expected that any change would 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
September 29, 2002 were not material.
-8-
On June 3, 2002, Viisage acquired all of the intellectual property and related
assets of the Miros division of eTrue.com, a major face recognition firm with
customer installations across the globe, for approximately $275,000 in cash. In
addition to acquiring patented technology, including Miros' TrueFace(R)
software, Viisage also gained access to an established customer base and new
distribution channels.
-9-
VIISAGE TECHNOLOGY, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and accompanying notes contained in the Company's 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" and
those discussed in the same section of the Company's 2001 Annual Report on Form
10-K. 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
usually long term contracts, typically five years or longer. The values
assigned to 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 matters such as legislative
changes to the life of the identification credentials; lack of
government funding; or contract termination 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
-10-
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
affected 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 third
quarter of 2002 were approximately $8,109,000 compared to approximately
$6,116,000 for the third quarter of 2001. Revenues for the first nine months of
2002 were approximately $23,546,000 compared to approximately $19,355,000 for
the same period in 2001. The primary component of the increase over the three
and nine month periods was in the secure identification arena from new contract
awards and the impact of the revenues generated from the acquisitions in 2002.
Facial recognition revenues were approximately 21% of total revenues in the
third quarter of 2002 compared to approximately 13% for the third quarter 2001.
For the first nine months of 2002 the facial recognition was approximately 19%
compared to approximately 14% for the same period in 2001.
Gross margins decreased to 19.9% in the third quarter of 2002 from 30.8% in the
third quarter of 2001. Gross margins decreased to 19.1% for the first nine
months of 2002 compared to 26.7% for the same period in 2001. The decline in
gross margins between the two three and nine 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 year's first nine
months. The decline in gross margin also reflects the Company's accounting for
adjustments to management's estimates for the driver's license contracts, as
well as the timing of various contract implementations.
Sales and marketing expenses increased approximately $1,370,000 in the third
quarter of 2002 from the third quarter of 2001 and increased approximately
$3,713,000 for the first nine months of 2002 from the first nine months of 2001.
This represents an increase to 19.0% from 2.8% of revenue for the quarter to
quarter period and an increase to 17.4% from 2.0% for the first nine months of
each fiscal year. This increase reflects the Company's continued effort to
create a market for its patented biometric solutions. In addition the Company
continues to evaluate and support its system integrators and reseller partners.
This allows the Company to market its facial recognition solutions to a broader
market than the Company's own internal resources could support.
Research and development expenses increased approximately $872,000 in the third
quarter of 2002 from the third quarter of 2001 and increased approximately
$1,828,000 for the first nine months of 2002 from the first nine months of 2001.
This represents an increase to 17.8% from 9.3% of revenue for the quarter to
quarter period and an increase to 13.8% from 7.4% of revenue for the first nine
months of each fiscal year. The increase is due principally to the Company's
continued investment in biometric technologies and new product development. This
included enhancing existing products with the intellectual property that was
acquired through the recent acquisitions.
General and administrative expenses increased by approximately $610,000 in the
third quarter of 2002 from the third quarter of 2001 and increased approximately
$1,187,000 for the first nine months of 2002 from the first nine months of 2001.
This represents an increase to 15.2% from 10.1 % of revenue for the quarter to
quarter periods and an increase to 12.6% from 9.2% of revenue for the first nine
months of
-11-
each fiscal year. The increase in expenses is due principally to the Company's
increased investment in infrastructure, personnel and rental costs associated
with additional space required to accommodate the headcount increases from the
acquisitions and internal growth.
Interest expense decreased approximately $116,000 in the third quarter of 2002
from the third quarter of 2001 and decreased approximately $278,000 for the
first nine months of 2002 from the first nine months of 2001. This represents a
decrease to 2.7% from 5.4% of revenue for the quarter to quarter period and 2.7%
from 4.8% for the first nine months of each fiscal year. 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 three month and nine month
periods in fiscal 2002 and 2001. In 2002 no provision has been necessary 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 approximately $6.7 million at September 29, 2002,
which consisted entirely of cash. The cash and cash equivalents at December 31,
2001 were approximately $20.7 million. The $14.0 million decrease related to
mergers and acquisitions within the year, debt reduction, increased strategic
market and product investment and approximately $2.4 million for project costs
that will be replaced with anticipated bank financings.
Accounts receivable increased approximately 40.4% from December 31, 2001 to
September 29, 2002 primarily due to the increase in revenue over the nine month
period.
Costs and estimated earnings in excess of billings increased approximately 10.9%
from December 31, 2001 to September 29, 2002, and reflect the unbilled
accumulation of costs on contracts in progress.
The Company had a $4.0 million operating line of credit. The Company terminated
this agreement in the fourth quarter of 2002 because of lack of current and
projected operating needs. The Company maintains a sweep account for short-term
investment of excess cash. The term notes for project financings that were
cross- defaulted with the operating line of credit are being amended to reflect
this change. At September 29, 2002, the Company had approximately $5.9 million
outstanding under the term notes.
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 project
lease financing 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
-12-
lease arrangements are accounted for as capital leases. At September 29, 2002,
the Company had approximately $5.5 million outstanding under the project lease
financing arrangements.
For the quarter ended September 29, 2002 the Company was in default of certain
financial covenants with its lenders and received waivers and amendments for
these covenant violations. Subsequent to September 29, 2002, the Company has
amended the financial covenants with its lenders and expects to maintain
compliance with these amended covenants.
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. There can be no assurance that the Company will meet its
business forecast.
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, for the nine months ended September
29, 2002, the Company invested approximately $1.2 million to furnish and equip
additional space needed to support the Company's projected growth.
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.
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 may
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.
-13-
[_] 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 affect 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. For a more complete understanding of the
risks affecting the Company, these statements should be read in conjunction with
the Company's Annual Report on Form 10-K. The Company undertakes no obligation
to update these forward-looking statements to reflect any future events or
circumstances.
ITEM 4 - CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Form 10-Q, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic SEC filings. There have been no significant changes in the
Company's internal controls or in other factors, which could significantly
affect internal controls subsequent to the date the Company carried out its
evaluation.
-14-
VIISAGE TECHNOLOGY, INC.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 2 - CHANGES IN SECURITIES
None.
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
Bernard Bailey was appointed Chief Executive Officer effective on or about
August 15, 2002.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K
None.
-15-
VIISAGE TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIISAGE TECHNOLOGY, INC.
Date: November 11, 2002 By: /s/ Bernard Bailey
-----------------------
Bernard Bailey
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)
-16-
CERTIFICATIONS
I, Bernard Bailey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Viisage Technology,
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 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
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 registrant's board of directors (or persons performing 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 internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Bernard Bailey
---------------------------
Bernard Bailey
Chief Executive Officer
(Principal Executive Officer)
-17-
I, Milton A. Alpern, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Viisage Technology,
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 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
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 registrant's board of directors (or persons performing 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 internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Milton A. Alpern
--------------------------------------
Milton A. Alpern
Chief Financial Officer
(Principal Financial and Accounting Officer)
-18-