1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
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 000-24389
VASCO DATA SECURITY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-4169320
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1901 SOUTH MEYERS ROAD, SUITE 210
OAKBROOK TERRACE, ILLINOIS 60181
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (630) 932-8844
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 3, 2001, 28,257,459 shares of the Company's Common Stock,
$.001 par value per share ("Common Stock"), were outstanding.
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VASCO DATA SECURITY INTERNATIONAL, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2001
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
December 31, 2000 and March 31, 2001 (Unaudited)..................................................... 3
Consolidated Statements of Operations (Unaudited)
for the three months ended March 31, 2000 and 2001................................................... 4
Consolidated Statements of Comprehensive Loss (Unaudited)
for the three months ended March 31, 2000 and 2001....................................................5
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 2000 and 2001................................................... 6
Notes to Consolidated Financial Statements........................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................ 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................................... 11
SIGNATURES....................................................................................................... 11
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This report contains the following tradmarks of the Company, some of which
are registered: Vasco, AssessKey, VACman Server and VACMan/Crypak, AuthentiCard
and Digipass.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2000 2001
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,832,645 $ 14,398,461
Accounts receivable, net of allowance for doubtful accounts
of $286,377 and $311,084 in 2000 and 2001, respectively 6,486,397 3,233,053
Inventories, net 1,111,751 2,049,231
Prepaid expenses 463,094 325,500
Deferred income taxes 83,000 83,000
Other current assets 532,081 342,515
------------ ------------
Total current assets 22,508,968 20,431,760
Property and equipment
Furniture and fixtures 1,350,616 1,152,292
Office equipment 4,043,015 4,471,116
------------ ------------
5,393,631 5,623,408
Accumulated depreciation (1,596,102) (1,907,260)
------------ ------------
3,797,529 3,716,148
Goodwill and other intangibles, net of accumulated amortization of
$3,697,456 in 2000 and $3,801,851 in 2001 1,438,537 3,135,613
Prepaid royalties and other assets 1,568,285 1,396,492
------------ ------------
TOTAL ASSETS $ 29,313,319 $ 28,680,013
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 362,250 $ 241,682
Accounts payable 2,790,698 2,388,424
Deferred revenue 1,950,322 1,167,851
Accrued expenses 3,098,284 3,008,411
------------ ------------
Total current
liabilities 8,201,554 6,806,368
Long-term debt 3,763,858 3,739,427
Minority interest -- 11,023
STOCKHOLDERS' EQUITY:
Series C Convertible Preferred stock, $.01 par value - 500,000 shares
authorized; 150,000 shares issued and outstanding in 2000 and 2001 6,780,098 7,071,094
Common stock, $.001 par value - 75,000,000 shares authorized; 27,866,583
shares issued and outstanding in 2000 28,256,129 shares issued and
outstanding in 2001 27,867 28,257
Additional paid-in capital 36,871,200 38,647,174
Accumulated deficit (26,035,112) (27,073,686)
Accumulated other comprehensive income-
cumulative translation adjustment (296,146) (549,644)
------------ ------------
Total stockholders' equity 17,347,907 18,123,195
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,313,319 $ 28,680,013
============ ============
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
2000 2001
---- ----
Net revenues $ 5,551,927 $ 7,872,725
Cost of goods sold 1,862,954 2,792,725
------------ ------------
Gross profit 3,688,973 5,080,000
------------ ------------
Operating costs:
Sales and marketing (exclusive of
$46,005 reported below as non-cash
compensation) 2,162,637 3,340,273
Research and development 941,605 1,380,621
General and administrative (exclusive of
$105,326 reported below as non-cash
compensation) 1,160,664 1,330,718
Non-cash compensation -- 151,331
------------ ------------
Total operating costs 4,264,906 6,202,943
------------ ------------
Operating loss (575,933) (1,122,943)
Interest income (expense), net (162,911) 129,973
Other income (expense), net (55,470) 128,173
------------ ------------
Loss before income taxes (794,314) (864,798)
Provision for income taxes 19,541 173,777
------------ ------------
Net loss $ 813,855) $ (1,038,574)
Preferred stock accretion -- (290,996)
------------ ------------
Net loss available to common stockholders (813,855) (1,329,570)
Basic and diluted net loss per share $ (0.03) $ (0.05)
============ ============
Weighted average shares outstanding 26,786,287 27,893,127
============ ============
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Three months ended March 31,
2000 2001
---- ----
Net loss $ (813,855) $(1,038,574)
Other comprehensive loss -
cumulative translation adjustment (105,738) (253,498)
----------- -----------
Comprehensive loss $ (919,593) $(1,292,072)
=========== ===========
See accompanying notes to consolidated financial statements.
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VASCO Data Security International, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended March 31,
2000 2001
---- ----
Cash flows from operating activities:
Net loss $ (813,855) $ (1,038,574)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 255,563 606,314
Interest paid in shares of common stock 78,750 --
Gain on sale of fixed assets -- (13,081)
Non-cash compensation expense -- 151,331
Changes in assets and liabilities, net of effects of
acquisition:
Accounts receivable, net (538,311) 3,358,711
Inventories, net 8,558 (922,567)
Prepaid expenses (127,980) 137,594
Other current assets 96,230 241,048
Accounts payable (1,145,231) (498,391)
Deferred revenue 205,311 (334,654)
Customer deposits -- (554,439)
Accrued expenses 1,911,859 (182,302)
------------ ------------
Net cash (used in) provided by operations (69,106) 950,990
------------ ------------
Cash flows from investing activities:
Acquisition of Identikey, Ltd. -- 141,156
Additions to property and equipment, net (183,511) (140,495)
------------ ------------
Net cash (used in) provided by investing activities (183,511) 661
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 965,109 12,662
Proceeds from issuance of debt 427,975 --
Repayment of debt (176,035) (144,999)
------------ ------------
Net cash provided by (used in) financing activities 1,217,049 (132,337)
Effect of exchange rate changes on cash (105,738) (253,498)
------------ ------------
Net increase (decrease) in cash 858,694 565,816
Cash and cash equivalents, beginning of period 2,576,494 13,832,645
------------ ------------
Cash and cash equivalents, end of period $ 3,435,188 $ 14,398,461
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 43,999 $ 48,509
Income taxes paid $ 2,632 $ --
Common stock issued in connection with acquisition $ $ 1,903,366
See accompanying notes to consolidated financial statements.
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VASCO DATA SECURITY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of VASCO Data Security International, Inc. and its subsidiaries
(collectively, the "Company" or "VASCO") and have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the audited
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000.
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements, and include all adjustments, consisting only
of normal recurring adjustments, necessary for the fair presentation of the
results of the interim periods presented. All significant intercompany accounts
and transactions have been eliminated. The operating results for the interim
periods presented are not necessarily indicative of the results expected for a
full year.
NOTE 2- BUSINESS COMBINATIONS
On March 29, 2001, the Company acquired Identikey Ltd., ("Identikey"),
a privately held international security software company headquartered in
Brisbane, Australia, with operations in the United States, Europe and Australia.
Under the terms of the purchase agreement, more than 90 percent of the
outstanding capital stock of Identikey was exchanged for 366,913 shares of
Company common stock, with potential additional earn-out payments made in the
form of additional shares which are based on defined performance incentives as
specified in the purchase agreement.
The acquisition of Identikey Ltd. was accounted for under the purchase
method of accounting, and accordingly, the acquired assets have been recorded at
their estimated fair values at the date of acquisition. Goodwill related to this
transaction is estimated to be $1,997,000 and is being amortized over a period
of 7 years.
The following summarized unaudited pro forma financial information for
the three months ended March 31, 2001 assumes the Identikey Ltd. acquisition
occurred as of January 1, 2000. No data is shown for the first three months of
2000 because operations in Identikey Ltd. commenced on May 17, 2000.
Three Months Ended
March 31,
------------------
2000
------------------
Net Revenues $ 7,863,303
Net loss (2,089,389)
Basic and diluted net loss per share $ (0.08)
These amounts are based upon certain assumptions and estimates, and do
not necessarily represent results that would have occurred if the acquisition
had taken place on the basis assumed above, nor are they indicative of the
results of future combined operations.
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NOTE 3- DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES
During 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities"), which is effective for
all fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a
comprehensive standard for the recognition and measurement of derivative
instruments and hedging activities. The adoption of this new standard did not
have a material effect on our consolidated financial position, liquidity, or
results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
VASCO designs, develops, markets and supports open standards-based
hardware and software security systems which manage and secure access to data.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q, including the "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 concerning, among other things, the
prospects, developments and business strategies for the Company and its
operations, including the development and marketing of certain new products and
the anticipated future growth in certain markets in which the Company currently
markets and sells its products or anticipates selling and marketing its products
in the future. These forward-looking statements (i) are identified by their use
of such terms and phrases as "expected," "expects," "believe," "believes,"
"will," "anticipated," "emerging," "intends," "plans," "could," "may,"
"estimates," "should," "objective," and "goals" and (ii) are subject to risks
and uncertainties and represent the Company's present expectations or beliefs
concerning future events. The Company cautions that the forward-looking
statements are qualified by important factors that could cause actual results to
differ materially from those in the forward-looking statements, including (a)
risks of general market conditions, including demand for the Company's products
and services, competition and price levels and the Company's historical
dependence on relatively few products, certain suppliers and certain key
customers, and (b) risks inherent to the computer and network security industry,
including rapidly changing technology, evolving industry standards, increasing
numbers of patent infringement claims, changes in customer requirements, price
competitive bidding, changing government regulations and potential competition
from more established firms and others. Therefore, results actually achieved may
differ materially from expected results included in, or implied by these
statements.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 2001
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements for the three months ended
March 31, 2000 and 2001.
Revenues
Revenues for the three months ended March 31, 2001 were $7,873,000, an
increase of $2,321,000, or 42%, as compared to the three months ended March 31,
2000. Revenues from the Digipass product line represented about 71% of our sales
while revenues from the Snareworks product line represented about 29% of our
sales. This compares with 62% of revenues from Digipass products versus 38% from
Snareworks products in the prior year first quarter. The change in composition
of sales is due to a dramatic increase in Digipass sales in the current year.
Digipass products represented $5,626,000 of total revenues in the first quarter
of 2001 versus $3,435,000 in the first quarter of 2000. Geographically, 35% of
revenues in the first quarter of 2001 were from the U.S. and 65% from outside
the U.S., primarily Europe. In the first quarter of 2000, 42% of revenues were
from the U.S. and 58% from outside the U.S., primarily Europe.
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Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 2001 was
$2,793,000, an increase of $930,000, or 49.9%, as compared to the three months
ended March 31, 2000. The increase was due to the increase in sales as
previously described.
Gross Profit
The Company's gross profit for the three months ended March 31, 2001
was $5,080,000, an increase of $1,391,000, or 38%, as compared to the three
months ended March 31, 2000. The increase in gross profit is due to higher
revenues for the period. This represents a gross margin of 65%, as compared to
66% for the same period of 2000.
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended March 31, 2001
were $3,340,000, an increase of $1,178,000, or 54%, over the three months ended
March 31, 2000. This increase is primarily due to headcount. At the end of this
first quarter, sales and marketing headcount was 59, compared to 32 for the same
period last year. Additionally, increased travel costs and development of a
company-wide marketing program attributed to this variance.
Research and Development
Research and development costs for the three months ended March 31,
2001 were $1,381,000, an increase of $439,000, or 47%, as compared to the three
months ended March 31, 2000. This increase is due to growth in headcount from 24
to 38. This manpower increase is needed for the development of Snareworks
products, as well as, ongoing product development work in the Digipass product
line.
General and Administrative Expenses
General and administrative expenses for the three months ended March
31, 2001 were $1,331,000, an increase of $170,000, or 15%, compared to the three
months ended March 31, 2000. Headcount in the U.S. grew from 7 to 10 to support
administrative activities resulting from increased sales growth. Additional
rental space, increased rental charges and utilities expenses also contributed
to this variance.
Interest Income, Net
Net interest income for the three months ended March 31, 2001 was
$130,000, compared to net interest expense of $163,000 for the same period in
2000. This change was due to a reduction in the debt base that resulted from a
conversion of a $5,000,000 note to equity after the first quarter of 2000.
Additionally, interest on invested cash balances increased from $0 in the first
quarter of 2000 to $178,000 in the first quarter of 2001.
Income Taxes
Income tax expense of $174,000 for the three months ended March 31,
2001 and $20,000 for the three months ended March 31, 2000 relates to foreign
operations. The increase in income tax expense is a result of increased
profitability in European operations.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $14,398,000 at March 31,
2001, which is an increase of approximately $566,000 from $13,833,000 at
December 31, 2000. As of March 31, 2001, the Company had working capital of
$13,625,000 compared with $14,307,000 at December 31, 2000.
At March 31, 2001, the Company had lines of credit from European banks
totaling approximately $3,400,000 of which all were used.
Capital expenditures during the first three months of 2001 were
$140,000 and consisted primarily of computer equipment and office furniture and
fixtures.
In March 29, 2001, 366,913 shares of the Company's common stock were
issued to acquire 90.2247% of Identikey Ltd.
The Company recorded an operating loss before non-cash compensation for
stock options to certain officers of the Company, of $972,000 and a net loss
before these options of $887,000. However, the Company had a loss before
non-cash compensation, interest, taxes, depreciation and amortization of
$365,000. The Company believes that its current cash balances, anticipated cash
generated from operations, will be sufficient to meet its anticipated cash needs
through the next twelve months.
The Company intends to seek acquisitions of businesses, products and
technologies that are complementary or additive to those of the Company. While
from time to time the Company engages in discussions with respect to potential
acquisitions, there can be no assurance that any such acquisitions will be made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during
the three month period ended March 31, 2001. For additional information, refer
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2000.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS, NONE.
ITEM 2. CHANGES IN SECURITIES. NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. NONE.
ITEM 5. OTHER INFORMATION. NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this Form 10-Q or
incorporated by reference as set forth below: None.
(b) Reports on Form 8-K
Form 8-K has been filed by the Registrant during the quarter ended
March 31, 2001. The report was filed on April 12, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 9, 2001.
VASCO Data Security International, Inc.
/s/ Mario R. Houthooft
--------------------------------------------------------------
Mario R. Houthooft
Chief Executive Officer and President
/s/ Dennis D. Wilson
--------------------------------------------------------------
Dennis D. Wilson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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