UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Amendment No. 2
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1999
Commission File Number 0-9940
FINGERMATRIX, INC.
(Exact name of registrant as specified in its charter)
New York 13-2854686
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification Number)
249 Saw Mill River Road, Elmsford, New York 10523
(Address of principal executive offices) (Zip Code)
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(914) 592-5930
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ____
Number of common shares outstanding as of: November 8, 1999 20,000,000
Purpose of Amendment:
The prior quarterly filings for June 30, 1999 presented compensation expense from the issuance of securities for the extinguishment of subordinated debt as an operating expense and in order to conform to the 1999 year end audited financial statement presentation, such expense is reclassified as an extraordinary loss on debt extinguishment. As such Part I, Item 1. "Financial Statements" and Item 2., Management's Discussions and Analysis of Financial Condition and Results of Operations have been modified to reflect such change.
Fingermatrix, Inc. and Subsidiaries
Index
Page
Part I: - Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations - Unaudited
- Three and Six Months Ended June 30, 1999 and 1998 3
Condensed Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998 4-5
Condensed Consolidated Statements of Cash Flows - Unaudited
- Three and Six Months Ended March 31, 1999 and 1998 6-7
Notes to Unaudited Condensed Financial Statements 8-13
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations 14-15
Signatures 16
2
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Fingermatrix, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
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Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Sales $ 557,376 $ 712,309 $ 1,102,535 $ 1,715,637
Cost of sales 343,706 426,382 743,803 1,020,267
------------- ------------ ------------- --------------
Gross profit 213,670 285,927 358,732 695,370
------------- ------------ ------------- --------------
Costs and expenses:
Selling, general and administrative expense 313,713 274,847 675,993 465,715
Interest and financing fees 61,370 50,739 100,957 53,296
Depreciation and amortization 19,118 17,153 35,494 34,306
------------- ------------ ------------- --------------
Total costs and expenses 394,201 342,739 812,444 553,317
------------- ------------ ------------- --------------
Income (loss) from operations (180,531) (56,812) (453,712) 142,053
Extraordinary loss on debt extinguishment (429,468) -- (429,468) --
------------- ------------ ------------- --------------
Net income (loss) $ (609,999) $ (56,812) $ (883,180) $ 142,053
============= ============ ============= ==============
Basic and diluted earnings (loss) per common share:
Income (loss) from operations $ (0.01) $ (0.01) $ (0.04) $ 0.02
Extraordinary loss on debt extinguishment (0.03) -- (0.03) --
------------- ------------ ------------- --------------
Net income (loss) $ (0.04) $ (0.01) $ (0.07) $ 0.02
============= ============ ============= ==============
Weighted average number of common shares 16,863,668 9,429,400 13,167,071 9,429,400
============= ============ ============= ==============
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See notes to unaudited condensed consolidated financial statements.
Fingermatrix, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
June 30,
1999 December 31,
Unaudited 1998
--------- ----
Assets:
Cash and cash equivalents $ 24,915 $ 13,717
Inventories, net 2,424,604 2,236,257
Accounts receivable, net 181,213 291,096
Other current assets 20,022 38,876
------------ ------------
Total current assets 2,650,754 2,579,946
------------ ------------
Furniture, fixtures and equipment, net 127,681 69,622
------------ ------------
Other assets:
Patents, net 94,281 --
Other assets 54,115 23,955
------------ ------------
Total other assets 148,396 23,955
------------ ------------
Total assets $ 2,926,831 $ 2,673,523
============ ============
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See notes to unaudited condensed consolidated financial statements.
Fingermatrix, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
June 30,
1999 December 31,
Unaudited 1998
--------- ----
Liabilities and shareholders' equity:
Liabilities:
Loan payable, related party $ 764,594 $ 357,746
Revolving line of credit 514,419 466,814
Accounts payable trade 405,185 128,430
Accrued expenses 299,617 355,187
Current portion of capitalized lease
obligations 17,686 17,117
------------ ------------
Current liabilities 2,001,501 1,325,294
Capitalized lease obligations -- 3,848
------------ ------------
Total liabilities 2,001,501 1,329,142
------------ ------------
Shareholders' equity:
Preferred stock, at par 1,000 --
Additional paid-in capital,
preferred stock 1,084,202 --
Common stock, at par (par value $0.01,
20,000,000 shares authorized and
20,000,000 and 9,429,400 shares
issued and outstanding as of June 30,
1999 and December 31, 1998, respectively) 200,000 94,294
Additional paid-in-capital, common stock 7,049,308 7,776,087
Accumulated deficit (7,409,180) (6,526,000)
------------ ------------
Total shareholders' equity 925,330 1,344,381
------------ ------------
Total liabilities and shareholders' equity $ 2,926,831 $ 2,673,523
============ ============
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See notes to unaudited condensed consolidated financial statements.
Fingermatrix, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows Unaudited
Six Months Ended June 30,
1999 1998
---- ----
Net income (loss) $ (883,180) $ 142,053
Adjustments to reconcile net income (loss) to net cash used in
operations:
Extraordinary loss on debt extinguishment 429,468 --
Amortization expense 35,494 34,306
Changes in assets and liabilities:
(Increase) decrease in assets:
Inventories, net (188,347) (71,215)
Accounts receivable, net 109,883 (170,860)
Other current assets 18,854 (81,822)
Increase (decrease) in liabilities:
Accounts payable trade 119,323 (387,726)
Accrued expenses (51,310) 188,924
-------------- --------------
Net cash used in operating activities (409,815) (346,340)
-------------- --------------
Cash flows form investing activities:
Increase in other assets (30,161) (20,278)
Capital expenditures -- (15,441)
-------------- --------------
Net cash used in investing activities (30,161) (35,719)
-------------- --------------
Cash flows from financing activities:
Advances from related party 406,848 266,802
Net advances on revolving line of credit 47,605 157,998
Payments on capitalized lease obligations (3,279) (11,307)
-------------- --------------
Net cash provided by financing activities 451,174 413,493
-------------- --------------
Net increase in cash and cash equivalents 11,198 31,434
Cash and cash equivalents at beginning of period 13,717 15,906
-------------- --------------
Cash and cash equivalents at end of period $ 24,915 $ 47,340
============== ==============
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See notes to unaudited condensed consolidated financial statements.
Fingermatrix, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows
Unaudited
Six Months Ended June 30,
1999 1998
---- ----
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest $ 69,618 $ 33,849
======== =========
Income taxes -- --
======== =========
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Supplemental Disclosure of Investing and Financing Activities:
During the six months ended June 30, 1999, the Company consummated a share exchange. The share exchange transaction is accounted for as a reverse acquisition, with SES Acquisition being the surviving company for accounting purposes. In accounting for the reverse acquisition, the equity of SES Acquisition, as the surviving company, and Fingermatrix, as the acquired company, has been recapitalized and the financial statements reflect the results of operations of the Company and SES Acquisition from the date of the reverse acquisition forward. The financial statements prior to the date of the reverse merger reflect the financial position and results of operations of SES Acquisition. As a result of the transaction as of April 28, 1999 the predecessor company's assets and liabilities for which there is no cash flow impact were consolidated into the balance sheet, including $90,000 furniture, fixtures and equipment, $97,833 of net capitalized patent costs, $274,166 of accounts payable trade, $108,803 of accrued expenses and $425,000 of subordinated debt.
During the six months ended June 30, 1999, the Company extinguished certain obligations with no cash flow impact. On April 28, 1999 certain creditors of the Company accepted 6,346 shares of the Series A Preferred Stock in exchange for their aggregate debt of $648,366. The 6,346 Series A Preferred shares, are convertible into 4,714,443 common shares of the Company and using the Black-Scholes option valuation formula, the value of such shares was determined to be approximately $1.1 million, resulting in $429,468 of extraordinary loss on debt extinguishment.
See notes to unaudited condensed consolidated financial statements.
Fingermatrix, Inc. and Subsidiaries
(1) Basis of Presentation - In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments (consisting of only normal, recurring accruals) necessary to present fairly the consolidated financial position of Fingermatrix, Inc. and its subsidiaries (the "Company") as of June 30, 1999 and December 31, 1998, the statement of operations for the three and six months ended June 30, 1999 and 1998 and the statement of cash flows for the six months ended June 30, 1999 and 1998.
(2) Reverse Acquisition and Change of Control
On April 28, 1999, in a share exchange with The Trinity Group, Inc. ("Trinity"), a privately held Delaware corporation, the Company acquired all of the issued and outstanding common and preferred shares of SES Acquisition Corp. in exchange for 85% of the equity and voting power of the Company consisting of 10,571,607 shares of Common Stock and 93,654 shares of Series A 2% Voting Convertible Redeemable Preferred Stock (the "Series A Preferred Stock"). Pursuant to the terms of the Agreement and Plan of Reorganization, the shareholders of the Company prior to the share exchange retained 10% of the ownership of the Company consisting of 9,428,393 shares of the Common Stock and certain creditors of the Company received 6,346 shares of the Series A Preferred Stock in exchange for their debt of $648,366, in the aggregate. The 6,346 Series A Preferred shares, are convertible into 4,714,443 common shares of the Company and using the Black-Scholes option valuation formula, the value of such shares was determined to be approximately $1.1 million, resulting in $429,468 of extraordinary loss on debt extinguishment.
The Agreement and Plan of Reorganization required that SES Acquisition Corp. and its subsidiaries have a minimum unaudited combined net worth of not less than $1,500,000 at the time of the share exchange. The Agreement and Plan of Reorganization also requires that, as soon as practicable, the Company call and hold a Special Meeting of Stockholders to vote upon increasing the authorized capital of the Company so as to permit the conversion of all of the Series A Preferred Stock into common stock and, upon the completion of such conversion, effecting a reverse split of the outstanding shares of the Common Stock so that there will remain 5,000,000 shares of common stock outstanding and no outstanding shares of the Series A Preferred Stock. Trinity owns a sufficient number of shares of the Company to cause the adoption of these proposals whether or not any other shareholder votes. The Company does not intend to solicit proxies for such meeting.
SES Acquisition Corp. is the sole stockholder of Sequential Electronic Systems, Inc. which designs and manufactures electro-optical products and S-Tech, Inc. which designs and manufactures specialized vending machines and a variety of avionics equipment. It also owns a 50.1% interest in FMX, Inc. which is developing electronic fingerprint identification technology.
The share exchange transaction is accounted for as a reverse acquisition, with SES Acquisition being the surviving company for accounting purposes. In accounting for the reverse acquisition, the equity of SES Acquisition, as the surviving company, and Fingermatrix, as the acquired company, has been recapitalized and the financial statements reflect the results of operations of the Company and SES Acquisition from the date of the reverse acquisition forward.
The financial statements prior to the date of the reverse merger reflect the financial position and results of operations of SES Acquisition.
(3) Change of Directors and Officers
Effective upon the closing of the share exchange the current directors of the Company resigned and Messrs. Lewis S. Schiller, E. Gerald Kay and Joel Brown were appointed to the Board of Directors of the Company. At such time the officers of the Company also resigned and the Board of Directors appointed Lewis S. Schiller as Chairman of the Board and Chief Executive Officer and Chief Financial Officer, Fred Zivitofsky as President and Grace Wnuk as Vice President and Secretary.
Mr. Lewis S. Schiller was appointed as Chairman of the Board, Chief Executive Officer and Director of the Company on April 28, 1999. He also serves as Chairman of the Board, Chief Executive Officer and as a director of Trinity, SES Acquisition Corp. and its subsidiaries. For more than five years prior to his resignation on April 2, 1998, Mr. Schiller was the Chairman of the Board, Chief Executive Officer and a director of The Sagemark Companies, Ltd. ("Sagemark"), formerly Consolidated Technology Group Ltd., a public company, and as, Chairman of the Board, Chief Executive Officer and a director of Sagemark's public and privately-held subsidiaries.
Mr. Fred Zivitofsky was appointed President of the Company on April 28, 1999. From 1993 until August 1997 Mr. Zivitofsky served as Senior Vice President and Chief Operating Officer of S-Tech, Inc., a wholly owned subsidiary of SES Acquisition Corp. From August 1997 to date he has served as President of S-Tech, Inc.
Ms. Grazyna B. Wnuk was appointed Vice President and Secretary of the Company. For more than five years prior to her resignation on April 2, 1998, Ms. Wnuk served as Secretary of Sagemark and all of its public and privately-held subsidiaries.
Mr. E. Gerald Kay was appointed as a director of the Company on April 28, 1999. For more than five years prior to his resignation on April 2, 1998, he served as a director of Sagemark and its public and certain of its privately-held subsidiaries. Mr. Kay has also served as Chairman of the Board and Chief Executive Officer of Chem International, Inc., a pharmaceutical manufacturer, Manhattan Drug Co., Inc., a wholesaler of pharmaceutical products, The Vitamin Factory, Inc., a chain of retail vitamin stores, and Connaught Press, Inc., a publisher, for more than the past five years. From 1988 to 1990, he was also President and a Director of The Rexall Group, Inc., a distributor of Rexall brand products.
Mr. Joel Brown was appointed as a director of the Company on April 28, 1999. For more than five years prior to such date, Mr. Brown has been a private investor.
(4) Subsequent Events
(a) Settlement of Accrued Rent
During the period wherein operations of the Company were suspended, the landlord of the Company's then leased premises, seized all furniture, fixtures and equipment of the Company for nonpayment of rent. In July 1999, the Company negotiated a settlement of the unpaid rent which included the payment of $70,000 ($20,000 paid by Mr. Schiller, $50,000 paid by SES Acquisition), issuance of a note payable in the amount of $45,000 and issuance of Series A Preferred stock which are convertible into 200,000 shares of the Company common stock. As a result of the settlement, all rent payable is satisfied and the landlord returned to the Company its furniture, fixtures and equipment.
(b) Share Exchange with GIL Security Systems, Inc.
On September 13, 1999, the Company issued to GIL Security Systems, Inc. ("GIL") 14,134 shares of its Series A Preferred Stock in payment of the purchase price for 1,000,000 shares of the common stock of GIL pursuant to a Stock Purchase Agreement between the Company and GIL. The Company's Series A Preferred Stock issued to GIL is convertible into 10,498,735 shares of the Company's common stock, at a conversion rate of 742.8 shares of common stock for each share of Series A Preferred Stock. Such conversion is subject to and conditioned upon a recapitalization of the Company pursuant to which the Company's authorized capitalization will be increased to provide for, among other things, the reservation of a sufficient number of shares of the Company's common stock to accommodate any such conversion. The Company granted "piggy-back" registration rights to GIL with respect to any shares of the Company's common stock that are issued to GIL upon conversion of the Series A Preferred Stock until such time as any of such shares become eligible for public sale under Rule 144(k) of the Securities Act of 1933, as amended (the "Securities Act").
The Trinity Group, Inc., Carol Schiller and Grazyna Wnuk, holders of 5% or more of the Company's outstanding common stock, agreed not to publicly sell the shares of the Company's common stock owned by them unless and to the extent that GIL publicly sells any of the shares of the Company's common stock acquired by it upon conversion of the Series A Preferred Stock unless 50% or more of such shares are registered under the Securities Act, or such shares become eligible for public sale under Rule 144(k) under the Securities Act.
On September 13, 1999, Secured Portal Systems, Inc. ("SPS"), a newly created, majority owned subsidiary of the Company, entered into an Exclusive Distribution Agreement with GIL (the "Distribution Agreement") pursuant to which SPS was engaged as the exclusive distributor for a certain secured entrance system developed, manufactured and marketed by GIL (the "Security Systems") for a term commencing as of September 1, 1999 and expiring on August 31, 2004. SPS obtained the exclusive right to distribute the Security Systems to certain categories of customers defined in the Distribution Agreement, including certain agencies of the Federal Government, including U.S. embassies, U.S. courthouses and U.S. government buildings, department stores and retail stores located in the United States, the Government of Israel, NCR Corp., and Sun Microsystems.
A certain percentage of the shares of Series A Preferred Stock issued to GIL under the Purchase Agreement are subject to redemption by the Company at $0.0001 per share in the event that the Distribution Agreement is terminated upon the written consent of SPS and GIL prior to the expiration of the term of such Agreement. The number of shares of Series A Preferred Stock which is subject to such redemption will be determined by reference to the number of months elapsed during the term of the Distribution Agreement at the time, if any, that the Distribution Agreement is terminated. GIL has a similar redemption right with respect to the shares of GIL's common stock purchased by the Company under the Purchase Agreement. The redemption price payable by GIL in such circumstances is $0.0001 per share. In addition, in the event that the Company does not complete its recapitalization by September 13, 2000, GIL has the right to modify the distribution rights granted to SPS under the Distribution Agreement from exclusive to non-exclusive for the remainder of the term of such Agreement.
The Company holds a series of preferred stock of SPS, which entitles the Company to elect a majority of SPS's board of directors
(c) Authorized Payments, Inc. Transaction
On October 22, 1999, the Company agreed to the terms of a proposed transaction between the Company and its newly formed subsidiary, Authorized Payments, Inc. ("API") and Joseph Randazza and Leslie Roth ("Mssrs. Randazza and Roth"). The proposed transaction is subject to customary closing conditions and is not binding to the parties. If the contemplated transaction is closed, the Company would sell to Mssrs. Randazza and Roth 16,152 shares of the Series A Preferred stock which are convertible into 11,997,705 shares of the Company's common stock for a price to be agreed upon based upon a valuation opinion performed by an investment banker to be selected by Mssrs. Randazza and Roth. The purchase price for the Series A Preferred shares would be satisfied by a cash payment equal to the par value of the preferred shares ($0.01 per share) and the issuance of non-recourse promissory notes for the balance. The promissory notes would be secured by a pledge of the Series A Preferred stock (or the common shares if converted) and a 50% interest in two U.S. patent applications which have been filed by Mr. Randazza. The notes would bear interest at the rates provided for imputed interest under the Internal Revenue Code and all interest and principle would be due in five years from date of execution, subject to certain mandatory prepayment conditions.
Subject to certain precedent conditions, the Company would agree to fund API with a minimum $350,000 loan. As consideration for the loan, the Company would receive from API, a common stock purchase warrant to purchase common shares of API at amounts to be mutually agreed upon between the Company and API, but in no event would the shares of API purchasable by the Company under said warrants exceed 49.9% of the outstanding common stock of API.
Simultaneously with the execution of the sale of the Series A Preferred stock, the Company and Mssrs. Randazza and Roth would enter into a subscription agreement whereby Mssrs. Randazza and Roth would purchase 46-2/3% and 23-1/3%, respectively, of the shares of the common stock of API and the Company and Mr. Schiller or his designees would purchase and aggregate of 30% of the shares of the common stock of API. The price to be paid for the
API shares by all purchasing parties would be an amount equal to the par value of such shares, payable in cash.
Simultaneously with the execution of the agreement, API would issue to the Company a series of preferred stock, which would entitle the Company to elect a majority of API's board of directors for so long as there is no default to certain provisions of the contemplated agreement.
Effective upon the proposed closing of the transaction, Mssrs. Randazza and Roth would become two of the four board members of API. Additionally, Mr. Randazza would become the senior vice president and director of sales and marketing of the Company, chief executive officer of SPS, see footnote (4)(b) above, and president of API. Mr. Roth would become the senior vice president of technical services and operations of the Company and the vice president of API. The Company and its subsidiaries and Mssrs. Randazza and Roth would enter into five-year employment agreements.
(4) Accounting Policies - The significant accounting policies followed by the Company are set forth in the footnotes to the December 31, 1998 financial statements of Sequential Electronic Systems, Inc. and S-Tech Inc. which are exhibits to the April 28, 1999 8-K, Amendment #1.
(5) Interim Results - The results of operations for the three and six months ended June 30, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year.
(6) Earnings (Loss) Per Common Share - Basic earnings (loss) per share reflects the amount of earnings (loss) for the period available to each share of common stock outstanding during the reporting period. Diluted earnings (loss) per share reflects basic earnings (loss) per share, while giving effect to all dilutive potential common shares that were outstanding during the period, such as common shares that could result from the potential exercise or conversion of securities into common stock. The computation of diluted earnings (loss) per share does not assume conversion, exercise, or contingent issuance of securities that would have an antidilutive effect on loss per share (i.e. increasing earnings per share or reducing loss per share). The dilutive effect of outstanding options and warrants and their equivalents are reflected in dilutive earnings (loss) per share by the application of the treasury stock method. The treasury stock method recognizes the use of proceeds that could be obtained upon the exercise of options and warrants and assumes that any such proceeds would be used to purchase common stock at the average market price of the common stock during the period. The dilutive effect of convertible securities and their equivalents are reflected in dilutive earnings (loss) per share by application of the if-converted method. Under the if-converted method, convertible securities are assumed to have been converted into common shares at the beginning of the period (or at time of issuance, if later) and any recorded preferred dividends, interest or nondiscretionary adjustments related to the convertible security are assumed to be reversed. As of June 30, 1999, the Company does not have any dilutive items and therefore, a dual presentation of loss per share is not presented. Warrants to purchase 100,000 common shares at $0.01, 285,000 common shares at $1.00 per share and 205,000 common shares at $2.00 per share, were outstanding for the three and six months ended June 30, 1999 and 1998. Convertible preferred stock which is convertible into 74,283,930 shares of common stock were outstanding since April 28, 1999. None of the aforementioned potential common shares were included in the computation of diluted loss per common share because such inclusion would be antidilutive.
(7) Preferred B Stock
The Trinity Group holds all of the issued and outstanding Series B Preferred stock, which allows The Trinity Group to elect a majority of the Board of Directors of the Company.
.............................
Item 2. Management's Discussions and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Statements in this Form 10-Q that are not descriptions of historical facts may be forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those identified in this Form 10-Q and in other documents filed by the Company with the Securities and Exchange Commission.
Reverse Acquisition
On April 28, 1999, in a share exchange with Trinity, the Company acquired all of the issued and outstanding common and preferred shares of SES Acquisition Corp. in exchange for 85% of the equity and voting power of the Company consisting of 10,571,607 shares of Common Stock and 93,654 shares of Series A Preferred Stock. The share exchange transaction is accounted for as a reverse acquisition, with SES Acquisition being the surviving company for accounting purposes. In accounting for the reverse acquisition, the equity of SES Acquisition, as the surviving company, and Fingermatrix, as the acquired company, has been recapitalized and the financial statements reflect the results of operations of the Company and SES Acquisition from the date of the reverse acquisition forward. The financial statements prior to the date of the reverse merger reflect the financial position and results of operations of SES Acquisition
SES Acquisition Corp. is the sole stockholder of Sequential Electronic Systems, Inc. which designs and manufactures electro-optical products and S-Tech, Inc. which designs and manufactures specialized vending machines and a variety of avionics equipment. It also owns a 50.1% interest in FMX, Inc. which is developing electronic fingerprint identification technology. The following narrative discusses the operating activity of these subsidiaries. The only significant operating activity not related to the Company's subsidiaries is the $429,468 of extraordinary loss from debt extinguishment.
Financial Condition - Liquidity and Capital Resources
As of June 30, 1999 ("June 1999") and December 31, 1998 ("December 1998"), the Company had working capital of $649,253 and $1.3 million, respectively. The decrease in working capital of $605,399 during the six month period ended June 30, 1999 is primarily the result of a $406,848 increase in advances from related party and a $276,755 increase in accounts payable. The changes in other components of working capital were not significant and amounted to $78,204 in the aggregate. During the six months ended June 30, 1999, the Company used $409,815 of cash in operating activities and the only significant source of cash was advances from a related party of approximately $406,848. The Company has issued its preferred stock in order to make its recent acquisitions, see footnotes (4)(b) and (4)(c) to the financial statements and is aggressively pursuing various financing sources with which to fund future operating activities.
Results of Operations
Comparing the three months ended June 30, 1999 and 1998 (the "1999 and 1998 2nd Quarters"), the Company's revenues decreased $154,933, or 22%, while during the same time period gross profit decreased $72,257, or 25%. The gross margin percentage for the 1999 and 1998 2nd Quarters was 38% and 40% respectively. Comparing the six months ended June 30, 1999 and 1998 (the "1999 and 1998 Six Months"), the Company's revenues decreased $613,102, or 36%, while during the same time period gross profit decreased $336,638, or 48%. The gross margin percentage for the 1999 and 1998 Six Months was 33% and 41% respectively.
Comparing the 1999 and 1998 2nd quarter, costs and expenses increased in the aggregate $51,462, or 15%, of which $38,866 relates to selling general and administrative expense, $10,631 relates to interest and financing costs and $1,965 relates to depreciation and amortization. Comparing the 1999 and 1998 Six Months, costs and expenses increased in the aggregate $259,127, or 47%, of which $210,278 relates to selling general and administrative expense, $47,661 relates to interest and financing costs and $1,188 relates to depreciation and amortization.
Included in the 1999 2nd Quarter and the 1999 Six Months is $429,468 of extraordinary loss from debt extinguishment. On April 28, 1999 certain creditors of the Company accepted 6,346 shares of the Series A Preferred Stock in exchange for their aggregate debt of $648,366. The 6,346 Series A Preferred shares, are convertible into 4,714,443 common shares of the Company and using the Black-Scholes option valuation formula, the value of such shares was determined to be approximately $1.1 million, resulting in $429,468 of extraordinary loss from debt extinguishment.
As a result of the foregoing, the Company incurred net losses for the 1999 and 1998 2nd Quarters of $609,999, $0.04 per share, and $56,812, or $0.01 per share, respectively and incurred a net loss for the 1999 Six Months of $883,180, or $0.07 and generated net income for the 1998 Six Months of $142,053, or $0.02 per share.
Year 2000 Issues
Many existing computer programs use only two digits to identify a year in a date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. This issue is referred to as the "Year 2000 Issue". The Company believes that the Year 2000 Issue will not have a significant impact on the operations or expenses of the Company. However, no assurance can be given that the Company will not incur significant cost in addressing the Year 2000 Issue or that the failure to adequately address the Year 2000
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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.
FINGERMATRIX, INC.
/S/______________ Chief Executive Officer and Director June 1, 2000 Lewis S. Schiller (Principal Executive and Accounting Officer) |
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS PART OF THE AMENDED QUARTERLY REPORT ON FORM 10-Q/A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AMENDED QUARTERLY REPORT ON FORM 10-Q/A. |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD END | JUN 30 1999 |
| CASH | 24,915 |
| SECURITIES | 0 |
| RECEIVABLES | 181,213 |
| ALLOWANCES | 0 |
| INVENTORY | 2,424,604 |
| CURRENT ASSETS | 2,650,754 |
| PP&E | 127,681 |
| DEPRECIATION | 0 |
| TOTAL ASSETS | 2,926,831 |
| CURRENT LIABILITIES | 2,001,501 |
| BONDS | 0 |
| COMMON | 200,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 1,000 |
| OTHER SE | 724,330 |
| TOTAL LIABILITY AND EQUITY | 2,926,831 |
| SALES | 1,102,535 |
| TOTAL REVENUES | 1,102,535 |
| CGS | 743,803 |
| TOTAL COSTS | 743,803 |
| OTHER EXPENSES | 1,140,955 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 100,957 |
| INCOME PRETAX | (453,712) |
| INCOME TAX | 0 |
| INCOME CONTINUING | (453,712) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | (429,468) |
| CHANGES | 0 |
| NET INCOME | (883,180) |
| EPS BASIC | (0.07) |
| EPS DILUTED | (0.07) |