<PAGE>
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 quarterly period ended September 30, 1996
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: 000-20719
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PRINTRAK INTERNATIONAL INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0070547
- -------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 North Tustin Avenue Anaheim, California 92807
- --------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(714) 238-2000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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 and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
------ -----
9,556,938 shares of the issuer's common stock, par value $0.0001 per share,
were outstanding as of October 31, 1996.
<PAGE>
FORM 10-Q
CONTENTS
Page Number
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
-----------------------------
Consolidated Balance Sheets at September 30, 1996
(unaudited) and March 31, 1996 . . . . . . . . . . . . . . . . . . 1
Unaudited Consolidated Statements of Operations for
the three month periods ended September 30, 1996 and 1995. . . . . 2
Unaudited Consolidated Statements of Operations for
the six month periods ended September 30, 1996 and 1995. . . . . . 3
Unaudited Consolidated Statements of Cash Flows for
the six month periods ended September 30, 1996 and 1995. . . . . . 4
Notes to the Consolidated Financial Statements . . . . . . . . . . 5
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . 8
PART II -OTHER INFORMATION
Item 1: Legal Proceedings . . . . . . . . . . . . . . . . . . . . 15
Item 2: Changes in Securities . . . . . . . . . . . . . . . . . . 15
Item 3: Defaults upon 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
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
(unaudited)
------------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,190 $ 3,518
Accounts receivable, net of allowances for doubtful accounts
of $200 and $234 (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . 14,892 11,086
Inventories, net (Note 3). . . . . . . . . . . . . . . . . . . . . . . . . . 8,874 8,852
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . 1,119 363
------- -------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 32,075 23,819
Property, plant and equipment - net . . . . . . . . . . . . . . . . . . . . . 4,432 2,889
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,640 4,847
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520 1,390
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$ 41,667 $ 32,945
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,580 $ 4,761
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,051 3,116
Current installments on long-term debt (Note 4). . . . . . . . . . . . . . . 161 888
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,513 3,904
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 234
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 10,444 12,903
Long-term debt, less current installments (Note 4) . . . . . . . . . . . . . . 1,703 5,614
------- -------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,147 18,517
Stockholders' equity:
Common stock ($.0001 par value; 20,000,000 shares authorized;
9,554,200 and 7,323,200 shares issued and outstanding) . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 15,023 308
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,812 14,352
Note receivable from stockholder . . . . . . . . . . . . . . . . . . . . . . ( 300) (300)
Cumulative foreign exchange translation adjustment . . . . . . . . . . . . . (16) 67
------- -------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . 29,520 14,428
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$ 41,667 $ 32,945
------- -------
------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months Three months
ended ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,046 $ 5,397
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . 2,407 2,546
------- -------
Total revenues . . . . . . . . . . . . . . . . . . . . . 13,453 7,943
COST OF REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . 6,210 3,476
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . 1,354 1,298
------- -------
Total cost of revenues . . . . . . . . . . . . . . . . . 7,564 4,774
Gross profit . . . . . . . . . . . . . . . . . . . . . . 5,889 3,169
OPERATING EXPENSES:
Research, development and engineering. . . . . . . . . . . 2,748 2,121
Selling, general and administrative . . . . . . . . . . . 2,676 2,361
------- -------
Total operating expenses . . . . . . . . . . . . . . . . 5,424 4,482
Operating income (loss). . . . . . . . . . . . . . . . . 465 (1,313)
Other income . . . . . . . . . . . . . . . . . . . . . . . 4 300
------- -------
Income (loss) before provision for income taxes. . . . . 469 (1,013)
Provision (benefit) for income taxes . . . . . . . . . . . 164 (168)
------- -------
Net income (loss). . . . . . . . . . . . . . . . . . . . $ 305 $ (845)
------- -------
------- -------
Net income (loss) per share (Note 5). . . . . . . . . . $ .03 $ (.12)
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Weighted average shares outstanding. . . . . . . . . . . 9,955 7,202
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months Six months
ended ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,719 $ 10,587
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . 4,854 5,089
------- -------
Total revenues . . . . . . . . . . . . . . . . . . . . . 25,573 15,676
COST OF REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . 11,125 6,544
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . 2,634 2,528
------- -------
Total cost of revenues . . . . . . . . . . . . . . . . . 13,759 9,072
Gross profit . . . . . . . . . . . . . . . . . . . . . . 11,814 6,604
OPERATING EXPENSES:
Research, development and engineering. . . . . . . . . . . 5,386 4,296
Selling, general and administrative . . . . . . . . . . . 5,520 4,657
------- -------
Total operating expenses . . . . . . . . . . . . . . . . 10,906 8,953
Operating income (loss). . . . . . . . . . . . . . . . . 908 (2,349)
Other income (expense) . . . . . . . . . . . . . . . . . . (203) 541
------- -------
Income (loss) before provision for income taxes. . . . . 705 (1,808)
Provision (benefit) for income taxes . . . . . . . . . . . 249 (300)
------- -------
Net income (loss). . . . . . . . . . . . . . . . . . . . $ 456 $ (1,508)
------- -------
------- -------
Net income (loss) per share (Note 5). . . . . . . . . . $ .05 $ (.21)
------- -------
------- -------
Weighted average shares outstanding. . . . . . . . . . . 8,836 7,201
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months Six months
ended ended
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . $ 456 $ (1,508)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 1,437 1,956
Amortization of deferred credit. . . . . . . . . . . . . . . . - (607)
Loss (gain) on sale of fixed assets. . . . . . . . . . . . . . 25 (60)
Deferred tax provision . . . . . . . . . . . . . . . . . . . . 207 -
Changes in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . (3,806) (278)
Inventories, net . . . . . . . . . . . . . . . . . . . . . . (2,650) (137)
Prepaid expenses and other current assets. . . . . . . . . . (756) (222)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (2,181) 381
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . 1,935 409
Income taxes payable . . . . . . . . . . . . . . . . . . . . (95) -
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . (1,391) (778)
-------- --------
Net cash used in operating activities . . . . . . . . . . . . (6,819) (844)
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (579) (875)
Proceeds from notes receivable . . . . . . . . . . . . . . . . 870 -
Proceeds from sale of land and building. . . . . . . . . . . . - 3,330
-------- --------
Net cash provided by investing activities. . . . . . . . . . . 291 2,455
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . . . . . . . . . . . . 3,929 5,694
Principal payments on long-term debt . . . . . . . . . . . . . (8,409) (8,294)
Net proceeds received from initial public offering . . . . . . 14,715 -
-------- --------
Net cash provided by (used in) financing activities. . . . . . 10,235 (2,600)
Effect of exchange rate changes on cash balances . . . . . . . (35) 47
Net increase (decrease) in cash and cash equivalents . . . . . . 3,672 (942)
Cash and cash equivalents, beginning of year . . . . . . . . . . 3,518 1,272
-------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . $ 7,190 $ 330
-------- --------
-------- --------
Non-Cash Transaction-Transfer of Inventory to Fixed Assets 2,628 -
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense . . . . . . . $ 168 $ 259
-------- --------
-------- --------
Cash paid during the period for income taxes . . . . . . . . . $ 125 $ 19
-------- --------
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
GENERAL BUSINESS
Printrak International Inc. ("the Company") designs, develops and manufactures
automated fingerprint identification systems (AFIS) primarily for use in law
enforcement applications, as well as in emerging applications for civil and
commercial markets.
On July 2, 1996, the Company completed an initial public offering of 2,000,000
shares of common stock for $8.00 per share, netting proceeds to the Company
after underwriting discounts and expenses of approximately $14.9 million. The
total offering included 2,500,000 shares, of which 2,000,000 were offered and
sold by the Company and 500,000 were offered and sold by stockholders. On
August 6, 1996, the Company's underwriters exercised an over-allotment option
for 121,000 shares which netted the Company additional proceeds of approximately
$0.9 million.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC").
These consolidated financial statements reflect all adjustments, which are
normal and recurring in nature, and which in the opinion of management are
necessary to a fair statement of the financial position and results of
operations as of and for the three month and six month periods ended September
30, 1996 and 1995. The results of operations for the three month period ended
September 30, 1996 are not necessarily indicative of the results of operations
for the entire fiscal year ending March 31, 1997. These consolidated financial
statements and related footnotes should be read in conjunction with the
consolidated financial statements and related footnotes presented in the
Company's S-1 registration statement.
CERTAIN TRANSACTIONS
During the six month period, the Company had outstanding loans from certain
related parties, including a promissory note to Richard M. Giles, the Company's
Chairman, President and Chief Executive Officer for $150,000. In conjunction
with the completion of the initial public offering, Mr. Giles repaid the
$150,000, along with accrued interest.
The Company also had outstanding a promissory note to RICOL, LLC, a company
controlled by Mr. Giles, for the principal amount of $1,230,000. On July 8,
1996, RICOL, LLC prepaid $730,000 of principal and accrued interest on the
promissory note, and in recognition of this payment, the Company's Board of
Directors amended certain terms of the note, as follows: the principal amount
of the note is reduced to $500,000, the entire principal balance is payable in
seven years or upon sale of the property, and the interest rate on the principal
is reduced from 10% the published prime rate of the Company's bank.
<PAGE>
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
September 30,
1996 March 31,
(unaudited) 1996
----------- ---------
Billed receivables . . . . . . . . . . . . . $ 8,273 $ 6,005
Unbilled receivables . . . . . . . . . . . . 6,819 5,315
-------- --------
15,092 11,320
Less allowance for doubtful accounts . . . . (200) (234)
-------- --------
14,892 11,086
-------- --------
-------- --------
Unbilled receivables consist of system and maintenance revenues which have been
earned but not invoiced because of contractual terms of the underlying
agreements.
3. INVENTORIES
Inventories consist of the following:
September 30, March 31,
1996 1996
(unaudited)
----------- ---------
Raw materials. . . . . . . . . . . . . . . . $ 3,982 $ 2,707
Work in process. . . . . . . . . . . . . . . 4,941 4,319
Finished goods . . . . . . . . . . . . . . . 620 2,183
-------- --------
9,543 9,209
Less allowance for inventory obsolescence. . (669) (357)
-------- --------
8,874 8,852
-------- --------
-------- --------
4. DEBT
Debt consists of the following:
September 30, March 31,
1996 1996
(unaudited)
----------- ---------
Revolving line of credit with bank . . . . . $ 1,200 $ 4,200
Term loans with bank . . . . . . . . . . . . - 1,996
Obligations under capital leases . . . . . . 664 306
------- -------
Total debt. . . . . . . . . . . . . . . . 1,864 6,502
Less current installments of
long-term debt. . . . . . . . . . . . . . (161) (888)
------- -------
1,703 5,614
------- -------
------- -------
On July 8, 1996, upon receiving the proceeds from the Company's initial public
offering, the Company repaid the revolving line of credit which equaled $3.4
million at the pay-off date, as well as the $1.7 million outstanding under term
loans with the same bank.
On August 12, 1996, the Company signed a new revolving credit agreement which
provides for a total of $15 million in secured borrowings and bears interest at
variable rates. The loan is scheduled to mature July 31, 1998, and as of
September 30, 1996, the Company had approximately $13.8 million of available
borrowings.
The revolving credit agreement contains certain financial and other covenants
with which the Company must comply on an on-going basis. Management believes
the Company is in compliance with all terms and covenants of this agreement at
September 30, 1996.
<PAGE>
5. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares are not included for the three month and six month
periods ended September 30, 1995 as the effect would be anti-dilutive. Weighted
average common and common equivalent shares include common shares and stock
options using the treasury stock method. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin Topic 4D, stock options granted during the
twelve months prior to the date of the initial filing of the Company's Form S-1
Registration Statement have been included in the calculation of common
equivalent shares using the treasury stock method as if they were outstanding as
of the beginning of the period.
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTORY NOTE
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include (i) the existence and development of
the Company's technical and manufacturing capabilities, (ii) anticipated
competition, (iii) potential future growth in revenues and income, (iv)
potential future decreases in costs, and (v) the need for, and availability of,
additional financing.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions that the Company will not lose a significant
customer or customers or experience increased fluctuations of demand or
rescheduling of purchase orders, that the Company's markets will continue to
grow, that the Company's products will remain accepted within their respective
markets and will not be replaced by new technology, that competitive conditions
within the Company's markets will not change materially or adversely, that the
Company will retain key technical and management personnel, that the Company's
forecasts will accurately anticipate market demand, and that there will be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes the assumptions could prove inaccurate and, therefore, there can be no
assurance that the results contemplated in forward-looking statements will be
realized. In addition, the business and operations of the Company are subject
to substantial risks which increase the uncertainty inherent in such
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
The following is management's discussion and analysis of certain significant
factors which have affected the earnings and financial position of the Company
during the period included in the accompanying financial statements. This
discussion compares the three-month period ended September 30, 1996 with the
three-month period ended September 30, 1995, as well as the six-month period
ended September 30, 1996 with the six-month period ended September 30, 1995.
This discussion should be read in conjunction with the financial statements and
associated notes.
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTH PERIOD
ENDED SEPTEMBER 30, 1995
TOTAL REVENUES
The Company's total revenues are comprised of system revenues, which include
products, file conversion services, and system installation; and maintenance
revenues related to hardware and software support.
Revenues equaled $13.5 million for the quarter ended September 30, 1996,
increasing 69.4% from revenues of $7.9 million for the quarter ended September
30, 1995. System revenues experienced an increase of 104.7% or $5.6 million to
approximate $11.0 million for the second quarter, up from $5.4 million for the
second quarter of the previous year. The increase in revenue for the second
quarter is attributable to a broadening of the Company's new customer base,
increased market acceptance of the Company's AFIS 2000 series of products among
existing customers, as well as revenue growth in the Livescan booking station
product line. Of the Company's total system revenues for the quarter ended
September 30, 1996, approximately 55% was derived from new customer revenue,
while 45% resulted from additional revenue to existing customers.
Maintenance revenues equaled $2.4 million for the quarter ended September 30,
1996, decreasing 5.5% from revenues of $2.5 million for the quarter ended
September 30, 1995. The decline in maintenance revenues is the result of a
number of customer AFIS 2000 system upgrades which, although they yield
increased system revenue, reduce maintenance revenues during such customers'
warranty periods.
The Company's quarterly revenues have in the past, and in the future may be
expected to fluctuate significantly. These fluctuations are the result of a
variety of factors, including: the Company's delivery cycle, variations in order
size, variations in product mix and the timing of orders.
GROSS PROFIT
Cost of revenues primarily consist of purchased materials procured for use in
the assembly of the Company's products, manufacturing labor and overhead, file
conversion costs and maintenance expenses.
Overall gross profit increased to $5.9 million for the quarter ended September
30, 1996 in comparison to $3.2 million for the quarter ended September 30,
1995. This resulted in an increase in gross profit of $2.7 million or 85.8%.
Gross margin was 43.8% for the three months ended September 30, 1996, up from
39.9% for the three months ended September 30, 1995. The gross profit for
system revenues increased to $4.8 million for the quarter ended September 30,
1996 from $1.9 million for the same quarter in fiscal year 1996. Furthermore,
this increase in system gross profit boosted the system gross margin to 43.8%
from 35.6% for the second quarter of the previous year. Gross margin related to
maintenance revenues decreased to 43.7% for the second quarter of the current
year in comparison to 49.0% for the second quarter of the previous year.
Overall maintenance gross profit declined $.2 million from $1.2 million for the
quarter ended September 30, 1995 to $1.0 million for the quarter ended September
30, 1996.
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The overall increase in system gross margin is attributable to $0.6 million of
software amortization, present in the second quarter of the prior year but
absent in the current quarter because all capitalized software was fully
amortized in the fourth quarter of the previous fiscal year. The reduction in
the Company's maintenance revenue margin is the result of increased maintenance
support costs without a corresponding increase in the price of maintenance
support service. The Company's margin may be affected quarter-to-quarter by
several factors, including the proportion of total revenues derived from
competitive bid processes and the mix of products sold.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses (RD&E) are comprised primarily of
compensation paid to personnel engaged in research, development and engineering
activities, amounts paid for outside services and the cost of materials used in
the development of hardware and software products.
RD&E expenses increased 29.6% to $2.7 million for the quarter ended September
30, 1996, up from $2.1 million for the quarter ended September 30, 1995. The
increase in RD&E expense is comprised of increased salary and contract labor
expense related to additional personnel engaged in research, as well as
engineering enhancement of existing products and additional depreciation expense
associated with the capitalization of equipment used principally for development
efforts. RD&E expenses, as a percentage of revenues, decreased to 20.4% for the
three month period ended September 30, 1996, down from 26.7% for the same period
of the previous year, primarily due to the increased level of total revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses consist principally of
compensation paid to sales, marketing, and administrative personnel, payments to
consultants, professional service fees, travel and related expenses and other
marketing expenses.
For the three month period ended September 30, 1996, SG&A expenses increased to
$2.7 million from $2.4 million for the three month period ended September 30,
1995. This reflects an overall SG&A expense increase of $0.3 million or 13.3%
between the first quarter of fiscal year 1996 and the first quarter of fiscal
year 1995. The increase in SG&A expenses results from increased sales and
administrative salary expense to support the infrastructure of a higher level of
revenues, as well as increased professional fees. SG&A expenses, as a
percentage of revenues, decreased to 19.9% for the three months ended September
30, 1996, down from 29.7% for the same three months of the previous year, due
primarily to the increased level of total revenues.
OTHER INCOME (EXPENSE)
Other income for the quarter ended September 30, 1996 equaled $4,000 in
comparison to $300,000 of other income for the quarter ended September 30, 1995.
Other income for the period ended September 30, 1996 is associated with $107,000
in interest income, offset by interest expense of $37,000 and other expenses of
approximately $66,000. For the quarter ended September 30, 1995, other income
resulted from the amortization of a deferred credit which became fully utilized
in March, 1996.
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROVISION (BENEFIT) FOR INCOME TAXES
Income tax expense for the quarter ended September 30, 1996 equaled $164,000 in
comparison to a benefit of $168,000 for the quarter ended September 30, 1995.
This represents an overall increase in tax expense of $332,000. The Company's
tax provision is based on a statutory rate of 35% and reflects the impact of
state and foreign taxes, as well as the utilization of limited net operating
loss carryforwards.
SIX MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE SIX MONTH PERIOD ENDED
SEPTEMBER 30, 1995
TOTAL REVENUES
The Company's total revenues are comprised of system revenues, which include
products, file conversion services, and system installation; and maintenance
revenues related to hardware and software support.
Revenues increased 63.1% to $25.6 million for the six months ended September 30,
1996 from $15.7 million for the six months ended September 30, 1995. System
revenues increased 95.7% or $10.1 million to $20.7 million for the six month
period ended September 30, 1996, up from $10.6 million for the six month period
ended September 30, 1995. The increase in revenue for the first two quarters is
attributable to continued increased market acceptance of the Company's AFIS 2000
series of products and revenue growth in the Livescan booking station product
line.
Maintenance revenues equaled $4.9 million for the six months ended September 30,
1996, decreasing 4.6% from revenues of $5.1 million for the six months ended
September 30, 1995. The decline in maintenance revenues is the result of a
number of customer AFIS 2000 system upgrades which, although they yield
increased system revenue, reduce maintenance revenues during such customers'
warranty periods.
GROSS PROFIT
Cost of revenues primarily consist of purchased materials procured for use in
the assembly of the Company's products, manufacturing labor and overhead, file
conversion costs and maintenance expenses.
Overall gross profit equaled $11.8 million for the six months ended September
30, 1996, up from $6.6 million for the six months ended September 30, 1995 and
resulting in a gross profit increase of $5.2 million or 78.9%. Gross margin
increased to 46.2% for the six months ended September 30, 1996 from 42.1% for
the six months ended September 30, 1995. The gross profit for system revenues
increased to $9.6 million for the six month period ended September 30, 1996 in
comparison to $4.0 million for the same period in fiscal year 1996.
Additionally, system gross margin equaled 46.3% for the six month period, up
from 38.2% for the six month period of the previous year. Gross margin related
to maintenance revenues declined to 45.7% for the current six month period in
comparison to 50.3% for the six months ended September 30, 1995. Overall
maintenance gross profit declined $.3 million from $2.5 million for the six
months of the prior year to $2.2 million for the six months of the current year.
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The overall increase in system gross margin is related to $1.1 million of
software amortization, present in the prior year but absent in the current year
because all capitalized software was fully amortized in the fourth quarter of
the previous fiscal year. The reduction in the Company's maintenance revenue
margin is the result of increased maintenance support costs without a
corresponding increase in the price of maintenance support service.
RESEARCH, DEVELOPMENT AND ENGINEERING
RD&E expenses increased 25.4% to $5.4 million for six months ended September 30,
1996 which represents a $1.1 million increase from prior year expense of $4.3
million. The increase in RD&E expense is comprised of increased salary and
contract labor expense related to additional personnel engaged in research and
engineering enhancement of existing products. Furthermore, depreciation expense
associated with the capitalization of development equipment has increased
approximately $180,000 over previous year levels. RD&E expenses, as a
percentage of revenues, decreased to 21.1% for the six months ended September
30, 1996, down from 27.4% for the same six month period of the previous year,
primarily due to the increased level of total revenues which promotes improved
operating expense leverage.
SELLING, GENERAL AND ADMINISTRATIVE
For the six month period ended September 30, 1996, SG&A expenses increased to
$5.5 million from $4.7 million for the period ended September 30, 1995. This
reflects an overall SG&A expense increase of $0.8 million or 18.5% between the
first two quarters of fiscal year 1997 and the first two quarters of fiscal year
1996. The increase in SG&A expenses results from increased sales and
administrative salary expense to support the infrastructure of a higher level of
revenues, increased travel and recruiting fees, as well as increased
professional fees. SG&A expenses, as a percentage of revenues, decreased to
21.6% for the six months ended September 30, 1996, down from 29.7% for the same
period of the previous year, due primarily to the improved operating expense
leverage resulting from an increased level of total revenues.
OTHER INCOME (EXPENSE)
Other expense for the six months ended September 30, 1996 equaled $203,000 in
comparison to $541,000 of other income for the six months ended September 30,
1995. Other expense for the six month period ended September 30, 1996 is
primarily associated with interest expense of approximately $169,000, partially
offset by interest income, and certain other expenses incurred during the
period. For the six months ended September 30, 1995, other income of
approximately $541,000 resulted primarily from the amortization of a deferred
credit which became fully utilized in March, 1996, offset by interest expense
associated with the Company's revolving line of credit and term loans.
PROVISION FOR INCOME TAXES
Income tax expense for the six months ended September 30, 1996 equaled $249,000
in comparison to a benefit of $300,000 for the six months ended September 30,
1995. This represents an overall increase in tax expense of $549,000. The
Company's tax provision is based on a statutory rate of 35% and reflects the
impact of state and foreign taxes and the utilization of limited net operating
loss carryforwards.
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SYSTEM BACKLOG
The Company measures its backlog of system revenues based on orders for which
contracts or purchase orders have been signed, but which have not been shipped
and for which revenues have not been recognized. At September 30, 1996, the
Company's system revenues backlog was approximately $24.9 million, compared to
$28.8 million at March 31, 1996. The reduction in the Company's backlog was
primarily due to the fact that the Company made significant shipments during the
period while several orders were awarded during the period but the contracts
were not finalized contracts prior to September 30, 1996.
Substantially all of the Company's backlog as of September 30, 1996 is expected
to be shipped during the current fiscal year. However, certain orders
comprising backlog may set forth requirements for custom software development or
data file conversion which may require extensive work to be completed prior to
shipment. Any failure of the Company to meet an agreed upon schedule could
result in the cancellation of the related order. Furthermore, variations in the
size, complexity and delivery requirements of the customer order may result in
substantial fluctuations in backlog from period to period. Accordingly, the
Company believes that backlog cannot be considered a meaningful indicator of
future financial performance.
FINANCIAL CONDITION
Cash and cash equivalents increased from $3.5 million at March 31, 1996 to $7.2
million at September 30, 1996 due to the receipt of the net proceeds from the
Company's initial public offering, offset in part by the repayment of debt.
Trade receivables rose $3.8 million from $11.1 million at March 31, 1996 to
$14.9 million at September 30, 1996 primarily as a result of increased revenues
and a significant customer balance which remained unbilled at September 30, 1996
because of terms within the customer's contract. Total inventory levels
remained consistent period over period as the reclassification of engineering
test items into fixed assets was offset by increased production inventory
because the Company had already received a significant portion of the materials
needed for third quarter shipments. The increase in prepaid expenses is
primarily attributable to a prepaid sales commission and prepaid quarterly
income taxes.
The increase in the net balance of property, plant and equipment of $1.5 million
from $2.9 million at March 31, 1996 to $4.4 million at September 30, 1996
reflects capital expenditures of approximately $0.6 million, depreciation
expense of $1.2 million, and the capitalization of approximately $2.6 in
engineering test equipment, previously classified as finished goods inventory.
Additionally, the Company wrote off certain fixed assets which had been reserved
in a previous period. Other assets decreased upon receiving a $.7 million
prepayment on a note receivable outstanding from RICOL, LLC, a company
controlled by Richard M. Giles, the Company's Chairman, President and Chief
Executive Officer.
Total current liabilities decreased from $12.9 million at March 31, 1996 to
$10.4 million at September 30, 1996. The decline in accounts payable is
attributable to the timing of vendor payments. The increase in accrued
liabilities of $1.9 million is partially associated with an increase in the
Company's warranty provision, necessitated by the increased level of system
shipments. Furthermore, an increase in certain other accruals contributed to
the increase in accrued liabilities . The decline in deferred revenue from
$3.9 million at March 31, 1996 to $2.5 million at September 30, 1996 is due to
the recognition of revenue on a significant customer contract which had been
previously deferred.
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The decline in total debt is a result of reduced borrowings under the Company's
new revolving line of credit. After receiving the proceeds from the Company's
initial public offering, the Company repaid amounts outstanding on the Company's
revolving line of credit, as well as amounts outstanding under the Company's
term loans. As such, the Company's overall debt balance declined $4.6 million
to $1.9 million at September 30, 1996, down from $6.5 million at March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations through the cash provided by its operations,
the utilization of its revolving credit line and cash provided by its initial
public offering. The Company's operating activities used net cash of
approximately $6.8 million for the period ended September 30, 1996, primarily as
a result of reductions in working capital. The Company's operating activities
used net cash of approximately $0.8 million for the period ended September 30,
1995 because the Company incurred a substantial net loss for the period.
The Company's investing activities provided approximately $.3 million of cash
for the six months ended September 30, 1996, due to capital expenditures of $0.6
million and $0.9 million cash received from the collection of a note receivable.
The Company's investing activities generated cash of approximately $2.5 million
for the six months ended September 30, 1996, primarily from the sale of the
Company's headquarters for proceeds of $3.3 million, partially offset by the
purchase of capital equipment of $.8 million.
Financing activities provided net cash of approximately $10.2 million for the
six months ended September 30, 1996 while financing activities for the six
months ended September 30, 1995 used net cash of $2.6 million. For the current
period, net debt repayments equaled $4.5 million. Net proceeds of approximately
$14.7 million were realized from the Company's initial public offering. For the
period ended September 30, 1995, the Company borrowed $5.7 million and paid
principal payments on its long-term debt of $8.3 million.
The Company believes that the cash generated from operations, together with the
proceeds received from the Company's initial public offering, will be sufficient
to meet its cash requirements at least through the end of fiscal year 1998.
<PAGE>
PRINTRAK INTERNATIONAL INC.
PART II-OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this report, the Company is not a party to any legal proceedings, the adverse
outcome of which, in management's opinion, individually or in the aggregate,
would have a material adverse effect on the Company's results of operations or
financial position.
Item 2 - CHANGES IN SECURITIES
None.
Item 3 - DEFAULTS UPON SENIOR SECURITIES
None.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5 - OTHER INFORMATION
None.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
10.1 Loan Agreement between Union Bank and Printrak International Inc. dated
August 12, 1996
<PAGE>
SIGNATURE
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.
PRINTRAK INTERNATIONAL INC.
(REGISTRANT)
BY ______________________________________________
Name: Kevin McDonnell
Title: Chief Financial Officer and Director
Date:_________________________
<PAGE>
EXHIBIT INDEX
Exhibit No: Title Page
- ----------- ----- ----
10.1 Loan Agreement with Union Bank 18
27 Financial Data Schedule
<PAGE>
[LOGO]
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made and entered into as of August 12,
1996 by and between Printrak International Inc., a Delaware corporation
("Borrower") and UNION BANK, a Division of Union Bank of California, N.A.
("Bank").
SECTION 1. THE LOAN
1.1.1 THE REVOLVING LOAN. Bank will loan to Borrower an
amount not to exceed Fifteen Million Dollars ($15,000,000) outstanding in the
aggregate at any one time (the "Revolving Loan"). Borrower may borrow, repay
and reborrow all or part of the Revolving Loan in accordance with the terms of
the Revolving Note. All borrowings of the Revolving Loan must be made before
July 31, 1998 at which time all unpaid principal and interest of the Revolving
Loan shall be due and payable. The Revolving Loan shall be evidenced by a
promissory note (the "Revolving Note") on the standard form used by Bank for
commercial loans. Bank shall enter each amount borrowed and repaid in Bank's
records and such entries shall be deemed to be the amount of the Revolving Loan
outstanding. Omission of Bank to make any such entries shall not discharge
Borrower of its obligation to repay in full with interest all amounts borrowed.
1.1.1 THE L/C SUBLIMIT. As a sublimit to the Revolving Loan,
Bank shall issue, for the account of Borrower, one or more irrevocable, letters
of credit (individually, an "L/C" and collectively, the "L/Cs"). All such L/Cs
shall be drawn on such terms and conditions as are acceptable to Bank. The
aggregate amount available to be drawn under all outstanding L/Cs and the
aggregate amount of unpaid reimbursement obligations under drawn L/Cs shall not
exceed Five Million Dollars ($5,000,000) and shall reduce, dollar for dollar,
the maximum amount available under the Revolving Loan. No L/C shall have an
expiry date more than Twenty-Four (24) months from its date of issuance and each
L/C shall be governed by the terms of (and Borrower agrees to execute) Bank's
standard form for L/C applications and reimbursement agreements. No L/C shall
expire after July 31, 1998.
1.2 TERMINOLOGY.
As used herein the word "Loan" shall mean, collectively, all
the credit facilities described above.
As used herein the word "Note" shall mean, collectively, all
the promissory notes described above.
As used herein, the words "Loan Documents" shall mean all
documents executed in connection with this Agreement.
1.3 PURPOSE OF LOAN. The proceeds of the Revolving Loan shall
be used for general working capital purposes and issuance of letters of credit.
1.4 INTEREST. The unpaid principal balance of the Revolving
Loan shall bear interest at the rate or rates provided in the Revolving Note and
selected by Borrower. The Revolving Loan may be prepaid in full or in part only
in accordance with the terms of the Revolving Note and any such prepayment shall
be subject to the prepayment fee provided for therein.
-1-
<PAGE>
1.5 UNUSED COMMITMENT FEE. On the last calendar day of the
third month following the execution of this Agreement and on the last calendar
day of each three-month period thereafter until July 31, 1998, or the earlier
termination of the Loan, Borrower shall pay to Bank a fee of One Quarter percent
(.25%) per year on the average unused portion of the Loan for the preceding
quarter computed on the basis of actual days elapsed of a year of 360 days.
1.6 L/C FEE. Borrower to pay One Hundred Twenty Five (125)
basis point fee per annum to be paid quarterly in advance for the issuance of
L/Cs. Standard charges will apply for other L/C activity.
1.7 BALANCES. Borrower shall maintain its primary depository
accounts with Bank until the Note and all sums payable pursuant to this
Agreement have been paid in full.
1.8 DISBURSEMENT. Upon execution hereof, Bank shall disburse
the proceeds of the Loan as provided in Bank's standard form Authorization
executed by Borrower.
1.9 CONTROLLING DOCUMENT. In the event of any inconsistency
between the terms of this Agreement and any Note or any of the other Loan
Documents, the terms of such Note or other Loan Documents will prevail over the
terms of this Agreement.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the proceeds
of the Loan unless at or prior to the time for the making of such disbursement,
the following conditions have been fulfilled to Bank's satisfaction:
2.1 COMPLIANCE. Borrower shall have performed and complied with
all terms and conditions required by this Agreement to be performed or complied
with by it prior to or at the date of the making of such disbursement and shall
have executed and delivered to Bank the Note and other documents deemed
necessary by Bank.
2.2 BORROWING, RESOLUTION. Borrower shall have provided Bank
with certified copies of resolutions duly adopted by the Board of Directors of
Borrower, authorizing this Agreement and the Loan Documents. Such resolutions
shall also designate the persons who are authorized to act on Borrower's behalf
in connection with this Agreement and to do the things required of Borrower
pursuant to this Agreement.
2.3 GUARANTEES. Printrak Limited ("Guarantors") shall have
executed and delivered to Bank a continuing guaranty in form and amount
satisfactory to Bank. Borrower shall cause Guarantor to submit to Bank not
later than One Hundred Twenty (120) days after the end of each fiscal year such
Guarantor's financial statement in form satisfactory to Bank.
2.4 CONTINUING COMPLIANCE. At the time any disbursement is to
be made, there shall not exist any event, condition or act which constitutes an
event of default under Section 6 hereof or any event, condition or act which
with notice, lapse of time or both would constitute such event of default; nor
shall there by any such event, condition, or act immediately after the
disbursement were it to be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 BUSINESS ACTIVITY. The principal business of Borrower is
development and installation of Automated Fingerprint Identification Systems.
3.2 AFFILIATES AND SUBSIDIARIES. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling interest
or at least 25% ownership interest) and their addresses, and the names of
Borrower's principal shareholders, are as provided on a schedule delivered to
Bank on or before the date of this Agreement.
-2-
<PAGE>
3.3 AUTHORITY TO BORROW. The execution, delivery and
performance of this Agreement, the Note and all other agreements and instruments
required by Bank in connection with the Loan are not in contravention of any of
the terms of any indenture, agreement or undertaking to which Borrower is a
party or by which it or any of its property is bound or affected.
3.4 FINANCIAL STATEMENTS. The financial statements of Borrower,
including both a balance sheet at March 31, 1996 together with supporting
schedules, and an income statement for the twelve (12) months ended March 31,
1996, have heretofore been furnished to Bank, and are true and complete and
fairly represent the financial condition of Borrower during the period covered
thereby. Since March 31, 1996 there has been no material adverse change in the
financial condition or operations of Borrower.
3.5 TITLE. Except for assets which may have been disposed of in
the ordinary course of business, Borrower has good and marketable title to all
of the property reflected in its financial statements delivered to Bank and to
all property acquired by Borrower since the date of said financial statements,
free and clear of all liens, encumbrances, security interests and adverse claims
except those specifically referred to in said financial statements.
3.6 LITIGATION. There is no litigation or proceeding pending or
threatened against Borrower or any of its property which is reasonably likely to
affect the financial condition, property or business of Borrower in a materially
adverse manner or result in liability in excess of Borrower's insurance
coverage.
3.7 DEFAULT. Borrower is not now in default in the payment of
any of its material obligations, and there exists no event, condition or act
which constitutes an event of default under Section 6 hereof and no condition,
event or act which with notice or lapse of time, or both, would constitute an
event of default.
3.8 ORGANIZATION. Borrower is duly organized and existing under
the laws of the state of its organization, and has the power and authority to
carry on the business in which it is engaged and/or proposes to engage.
3.9 POWER. Borrower has the power and authority to enter into
this Agreement and to execute and deliver the Note and all of the other Loan
Documents.
3.10 AUTHORIZATION. This Agreement and all things required by
this Agreement have been duly authorized by all requisite action of Borrower.
3.11 QUALIFICATION. Borrower is duly qualified and in good
standing in any jurisdiction where such qualification is required.
3.12 COMPLIANCE WITH LAWS. Borrower is not in violation with
respect to any applicable laws, rules, ordinances or regulations which
materially affect the operations or financial condition of Borrower.
3.13 ERISA. Any defined benefit pension plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of Section
302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in
ERISA has occurred with respect to any such plan.
3.14 REGULATION U. No action has been taken or is currently
planned by Borrower, or any agent acting on its behalf, which would cause this
Agreement or the Note to violate Regulation U or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the Securities
and Exchange Act of 1934, in each case as in effect now or as the same may
hereafter be in effect. Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock as one of its
important activities and none of the proceeds of the Loan will be used directly
or indirectly for such purpose.
3.15 CONTINUING REPRESENTATIONS. This representations shall be
considered to have been made again at and as of the date of each disbursement of
the Loan and shall be true and correct as of such date or dates.
-3-
<PAGE>
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any other
of the Loan Documents have been paid in full, unless Bank waives compliance in
writing, Borrower agrees that:
4.1 USE OF PROCEEDS. Borrower will use the proceeds of the Loan
only as provided in subsection 1.3 above.
4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge
promptly all taxes, assessments and other governmental charges and claims levied
or imposed upon it or its property, or any part thereof, provided, however, that
Borrower shall have the right in good faith to contest any such taxes,
assessments, charges or claims and, pending the outcome of such contest, to
delay or refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes, assessments, charges and
claims.
4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and
preserve its existence and assets and all rights, franchises, licenses and other
authority necessary for the conduct of its business and will maintain and
preserve its property, equipment and facilities in good order, condition and
repair. Bank may, at reasonable times, visit and inspect any of the properties
of Borrower.
4.4 RECORDS. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles and will permit Bank to have access thereto, to make
examination and photocopies thereof, and to make audits during regular business
hours. Costs for such audits shall be paid by Borrower.
4.5 INFORMATION FURNISHED. Borrower will furnish to Bank:
(a) Within Forty-Five (45) days after the close of each
fiscal quarter, except for the final quarter of each fiscal year, its unaudited
balance sheet as of the close of such fiscal quarter, its unaudited income and
expense statement with supportive schedules and statement of retained earnings
for that fiscal quarter, prepared in accordance with generally accepted
accounting principles. An A/R Aging and Open System Contract Report for such
fiscal quarter;
(b) Within One Hundred Twenty (120) days after the close of
each fiscal year, a copy of its statement of financial condition including at
least its balance sheet as of the close of such fiscal year, its income and
expense statement and retained earnings statement for such fiscal year, examined
and prepared on an audited basis by independent certified public accountants
selected by Borrower and reasonably satisfactory to Bank, in accordance with
generally accepted accounting principles applied on a basis consistent with that
of the previous year and a copy of Borrower's Annual Report;
(c) As soon as available, copies of such financial
statements and reports as Borrower may file with any state or federal agency,
including all 10-Q and 10K Reports;
(d) Such other financial statements and information as Bank
may reasonably request from time to time;
(e) In connection with each financial statement provided
hereunder, a statement executed by the chief financial officer of Borrower,
certifying that no default has occurred and no event exists which with notice
or the lapse of time, or both, would result in a default hereunder;
(f) In connection with each fiscal year-end statement
required hereunder, any management letter of Borrower's certified public
accountants.
-4-
<PAGE>
(g) Prompt written notice to Bank of all events of default
under any of the terms or provisions of this Agreement or of any other
Agreement, contract, document or instrument entered, or to be entered into with
Bank; and of any litigation which, if decided adversely to Borrower, would have
a material adverse effect on Borrower's financial condition; and of any other
matter which has resulted in, or is likely to result in, a material adverse
change in its financial condition or operations; and
(h) Prior written notice to Bank of any changes in
Borrower's officers and other senior management; Borrower's name; and location
of Borrower's assets, principal place of business or chief executive office.
4.6 QUICK RATIO. Borrower shall maintain at all times a ratio
of cash, accounts receivable and marketable securities to current liabilities of
not less than 1.75:1.0, as such terms are defined by generally accepted
accounting principles.
4.7 TANGIBLE NET WORTH. Borrower will at all times maintain
Tangible Net Worth of not less than Twenty Two Million Three hundred Six
Thousand Dollars ($22,306,000). Thereafter, Borrower will at all times maintain
a minimum Tangible Net Worth that increases from said amount as of the end of
Borrower's fiscal year by Seventy percent (70%) of Borrower's net profit after
taxes plus One Hundred percent (100%) of all future equity additions. "Tangible
Net Worth" shall mean net worth increased by indebtedness of Borrower
subordinated to Bank and decreased by patents, licenses, trademarks, trade
names, goodwill and other similar intangible assets, organizational expenses,
and monies due from affiliates (including officers, shareholders and directors).
4.8 DEBT TO TANGIBLE NET WORTH. Borrower will at all times
maintain a ratio of total liabilities to tangible net worth of not greater than
1.0:1.0.
4.9 PROFITABILITY. Borrower will maintain a net profit, after
provision for income taxes, of any positive amount for any three fiscal
quarters, as reported at the end of each such fiscal quarter and as reported at
its fiscal year end.
4.10 CASH FLOW. Borrower will maintain a ratio of Cash Flow to
Debt Service of not less than 1.50:1.0. Compliance with this subsection shall
be measured as of the end of Borrower's fiscal year. "Cash Flow" shall mean net
profit after taxes to which depreciation, amortization and other noncash
expenses are added for the fiscal year just ended. "Debt Service" shall mean
that portion of long-term liabilities and capital leases coming due within
twelve (12) months after the date of calculation.
4.11 INSURANCE. Borrower will keep all of its insurable
property, real, personal or mixed, insured by good and responsible companies
against fire and such other risks as are customarily insured against by
companies conducting similar business with respect to like properties. Borrower
will maintain adequate worker's compensation insurance and adequate insurance
against liability for damages to persons and property.
4.12 ADDITIONAL REQUIREMENTS. Borrower will promptly, upon
demand by Bank, take such further action and execute all such additional
documents and instruments in connection with this Agreement as Bank in its
reasonable discretion deems necessary, and promptly supply Bank with such other
information concerning its affairs as Bank may request from time to time.
4.13 LITIGATION AND ATTORNEYS' FEES. Borrower will pay promptly
to Bank upon demand, reasonable attorneys' fees (including but not limited to
the reasonable estimate of the allocated costs and expenses of in-house legal
counsel and legal staff) and all costs and other expenses paid or incurred by
Bank in collecting, modifying or compromising the Loan or in enforcing or
exercising its rights or remedies created by, connected with or provided for in
this Agreement or any of the Loan Documents, whether or not an arbitration,
judicial action or other proceeding is commenced. If such proceeding is
commenced, only the prevailing party shall be entitled to attorneys' fees and
court costs.
-5-
<PAGE>
4.14 BANK EXPENSES. Borrower will pay or reimburse Bank for all
costs, expenses and fees incurred by Bank in preparing and documenting this
Agreement and the Loan, and all amendments and modifications thereof, including
but not limited to all filing and recording fees, costs of collateral audits,
costs of appraisals, insurance and attorneys' fees, including the reasonable
estimate of the allocated costs and expenses of in-house legal counsel and legal
staff.
4.15 REPORTS UNDER PENSION PLANS. Borrower will furnish to Bank,
as soon as possible and in any event within 15 days after Borrower knows or has
reason to know that any event or condition with respect to any defined benefit
pension plans of Borrower described in Section 3 above has occurred, a statement
of an authorized officer of Borrower describing such event or condition and the
action, if any, which Borrower proposes to take with respect thereto.
4.16 ACQUISITION NOTIFICATION AND CONSENT. Borrower will
promptly notify Bank and attain Bank's consent to make acquisitions of another
business or entity valued in excess of Five Million Dollars ($5,000,000).
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement or any
other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
5.1 ENCUMBRANCES AND LIENS. Borrower will not create, assume or
suffer to exist any mortgage, pledge, security interest, encumbrance, or lien
(other than for taxes not delinquent and for taxes and other items being
contested in good faith) on property of any kind, whether real, personal or
mixed, now owned or hereafter acquired, or upon the income or profits thereof,
except to Bank and except for minor encumbrances and easements on real property
which do not affect its market value, and except for existing liens on
Borrower's personal property and future purchase money security interests
encumbering only the personal property purchased.
5.2 BORROWINGS. Borrower will not sell, discount or otherwise
transfer any account receivable or any note, draft or other evidence of
indebtedness, except to Bank or except to a financial institution at face value
for deposit or collection purposes only and without any fee other than fees
normally charged by the financial institution for deposit or collection
services. Borrower will not borrow any money, become contingently liable to
borrow money, nor enter any agreement to directly or indirectly obtain borrowed
money, except pursuant to agreements made with Bank.
5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will
neither liquidate nor dissolve nor enter into any consolidation, merger,
partnership or other combination, nor convey, nor sell, nor lease all or the
greater part of its assets or business, nor purchase or lease all or the greater
part of the assets or business of another; provided, however, Borrower may
acquire, merge or consolidate with another corporation if Borrower is the
surviving corporation and the aggregate value of the assets so transferred does
not exceed Twenty-Five percent (25%) of Borrower's tangible net worth as of the
end of the month prior to the effective date of such combination and such assets
will not be subject to any lien or encumbrance following the effective date of
such combination.
5.4 LOANS, ADVANCES AND GUARANTIES. Borrower will not, except
in the ordinary course of business as currently conducted, make any loans or
advances, become a guarantor or surety, pledge its credit or properties in any
manner or extend credit.
5.5 INVESTMENTS. Borrower will not purchase the debt or equity
of another person or entity except for savings accounts and certificates of
deposit of Bank, direct U.S. Government obligations and commercial paper issued
by corporations with the top ratings of Moody's or Standard & Poor's, provided
all such permitted investments shall mature within one year of purchase.
5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay any
dividends other than a dividend payable in its own common stock, or authorize or
make any other distribution with respect to any of its stock now or hereafter
outstanding which exceeds in the aggregate for any fiscal year One Million
Dollars ($1,000,000) or Thirty percent (30%) of Borrower's net profits after
taxes whichever is less.
-6-
<PAGE>
5.7 RETIREMENT OF STOCK. Borrower will not acquire or retire
any share of its capital stock for value.
5.8 PARENT AND SUBSIDIARY PROPERTY. Borrower will not transfer
any property to its parent or any affiliate of its parent, except for value
received in the normal course of business as business would be conducted with an
unrelated or unaffiliated entity. In no event shall management fees or fees for
services be paid by Borrower to any such direct or indirect affiliate without
Bank's prior written approval.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default") shall
terminate any obligation on the part of Bank to make or continue the Loan and
automatically, unless otherwise provided under the Note, shall make all sums of
interest and principal and any other amounts owing under the Loan immediately
due and payable, without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor, or any other notices or demands:
6.1 Borrower shall default in the due and punctual payment of
the principal of or the interest on the Note or any of the other Loan Documents;
or
6.2 Any default shall occur under the Note; or
6.3 Borrower shall default in the due performance or observance
of any covenant or condition of the Loan Documents;
6.4 Any guaranty or subordination agreement required hereunder
is breached or becomes ineffective, or any Guarantor or subordinating creditor
dies, disavows or attempts to revoke or terminate such guaranty or subordination
agreement; or
6.5 There is a change in ownership or control of ten percent
(10%) or more of the issued and outstanding stock of Borrower or any Guarantor,
or (if Borrower is a partnership) there is a change in ownership or control of
any general partner's interest.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 ADDITIONAL REMEDIES. The rights, power and remedies given
to Bank hereunder shall be cumulative and not alternative and shall be in
addition to all rights, powers and remedies given to Bank by law against
Borrower or any other person, including but not limited to Bank's rights of set
off or banker's lien.
7.2 NONWAIVER. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy shall
not preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
7.3 INUREMENT. The benefits of this Agreement shall inure to
the successors and assigns of Bank and the permitted successors and assignees of
Borrower, and any assignment of Borrower without Bank's consent shall be null
and void.
7.4 APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California.
7.5 SEVERABILITY. Should any one or more provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective.
-7-
<PAGE>
7.6 INTEGRATION CLAUSE. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire Agreement
between Bank and Borrower regarding the Loan and all prior communications verbal
or written between Borrower and Bank shall be of no further effect or
evidentiary value.
7.7 CONSTRUCTION. The Section and subsection headings herein
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
7.8 AMENDMENTS. This Agreement may be amended only in writing
signed by all parties hereto.
7.9 COUNTERPARTS. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following methods and
addressed to the respective party at its address given with the signatures at
the end of this Agreement and shall be considered to have been validly given:
(a) upon delivery, if delivered personally; (b) upon receipt, if mailed, first
class postage prepaid, with the United States Postal Service; -C- on the next
business day, if sent by overnight courier service of recognized standing; and
(d) upon telephoned confirmation of receipt, if telecopied.
8.2 The addresses to which notices or demands are to be given
may be changed from time to time by notice delivered as provided above.
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK
By: /s/ Kim Ha
----------------------------------
Kim Ha
Title Vice President
----------------------------------
By: /s/ Jack Lenhof
----------------------------------
Jack Lenhof
Title Vice President
----------------------------------
500 South Main Street, Suite 201
Orange, Ca. 92668
Attention: Kim Ha, Vice President
Telecopier: (714)565-5725
Telephone: (714)565-5724
PRINTRAK INTERNATIONAL INC.
By: /s/ Susanna Bennett
----------------------------------
Title V.P. Treasurer & Corp. Secretary
----------------------------------
1250 N. Tustin Avenue
Anaheim, Ca. 92807
Attention: Susanna Bennett, Vice President, Treasurer & Corporate Secretary
Telecopier: (714)238-2006
Telephone: (714)238-2039
-8-
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<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1996
<PERIOD-START> JUL-01-1996 APR-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
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