<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MAY 7, 1997
PRINTRAK INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 000-20719 33-0070547
------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No)
1250 NORTH TUSTIN AVENUE, ANAHEIM, CALIFORNIA 92807
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 238-2000
NOT APPLICABLE
(Former name or former address, if changed since last report)
Exhibit Index on Page 5
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 7, 1997, Printrak International Inc. ("Printrak") acquired all
of the issued and outstanding capital stock of TFP Inc. ("TFP"), a South
Carolina corporation in accordance with the terms and conditions of the
Agreement and Plan of Reorganization and Merger dated as of April 7, 1997 (the
"Agreement"), by and among Printrak, TFP Acquisition Corp., a South Carolina
corporation and wholly-owned subsidiary of Printrak, and TFP.
As a result of the Merger, TFP became a wholly-owned subsidiary of
Printrak and the outstanding shares and outstanding warrants to purchase shares
of TFP Common Stock and Series A Preferred Stock have been converted into an
aggregate of 1,399,494 shares of fully paid and non-assessable Common Stock,
$.0001 par value, of Printrak, subject to possible adjustment as set forth in
the Agreement. The outstanding options to purchase shares of TFP Common Stock
have been converted into the right to acquire 116,496 shares of Common Stock of
Printrak.
The number of shares to be converted was calculated by dividing One
Million Four Hundred Thousand (1,400,000) shares of Printrak Common Stock by
(b) the number of shares of TFP Stock that was equal to the sum of (i) the total
number of shares of TFP Common Stock and Preferred Stock ("TFP Stock") that were
issued and outstanding on May 6, 1997, plus (ii) the total number of shares of
TFP Stock, if any, that were directly or indirectly ultimately issuable by TFP
upon the exercise, conversion or exchange of all TFP Derivative Securities that
were issued and outstanding on May 6, 1997. The purchase price and all other
terms of the Agreement were determined pursuant to arms-length negotiations
between the parties.
ITEM 5. OTHER EVENTS
In connection with the above described transaction, Printrak entered into
an Employment and Non-Competition Agreement with Barry B. White (the "Employment
Agreement"). The Employment Agreement provides for the employment of Mr. White
as the President of TFP and the Vice President of Printrak for a period of two
years following the Merger, at a salary of $150,000 per year, plus an incentive
bonus of up to $60,000 based on the attainment of certain performance goals. In
the event Mr. White's employment is terminated other than due to his voluntary
resignation, Mr. White will be entitled to receive up to one year's salary, plus
$100,000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
- Independent Auditors' Reports
- Consolidated Balance Sheets as of December 31, 1995 and 1996
- Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996
- Consolidated Statement of Stockholders' Equity (Deficit) for
the years ended December 31, 1994, 1995 and 1996
- Consolidated Statements of Cash Flow for the years ended
December 31, 1994, 1995 and 1996
- Notes to Consolidated Financial Statements
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION.
The following PRO FORMA financial statements of TFP Inc. are
unavailable and are anticipated to be filed under Form 8-K/A
within 60 days:
- PRO FORMA condensed Balance Sheets as of March 31, 1997
- PRO FORMA condensed Statement of Operations for the years
ended March 31, 1995, 1996 and 1997
- PRO FORMA condensed Statements of Cash Flow for the years
ended March 31, 1995, 1996 and 1997
(c) EXHIBITS.
2.1 Agreement and Plan of Reorganization and Merger dated April 7,
1997 (incorporated by reference to Exhibit 10.1 of the
Registrant's Form 8-K filed on April 17, 1997)
23.1 Consent of KPMG Peat Marwick LLP
(to be filed by amendment)
23.2 Consent of Deloitte & Touche LLP
(to be filed by amendment)
99.1 Press Release dated April 7, 1997 (incorporated by reference to
Exhibit 99.1 of the Registrant's Form 8-K filed on April 17,
1997)
99.2 Financial Statements of TFP Inc. described in Item 7(a) above
99.3 PRO FORMA Financial Statements of TFP Inc. described in Item 7(b)
above (to be filed by amendment)
99.4 Employment and Non-Competition Agreement - Barry B. White
(incorporated by reference to Exhibit 99.1 of Barry B. White's
Schedule 13D filed on May 16, 1997)
<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.
Date: May 21, 1997 By: /S/ KEVIN MCDONNELL
-----------------------------------
Kevin McDonnell
Chief Financial Officer and Director
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
2.1 Agreement and Plan of Reorganization and Merger --
dated April 7, 1997 (incorporated by reference
to Exhibit 10.1 of the Registrant's Form 8-K filed
on April 17, 1997)
23.1 Consent of KPMG Peat Marwick LLP *
(to be filed by amendment)
23.2 Consent of Deloitte & Touche LLP *
(to be filed by amendment)
99.1 Press Release dated April 7, 1997 (incorporated --
by reference to Exhibit 99.1 of the Registrant's
Form 8-K filed on April 17, 1997)
99.2 Financial Statements of TFP Inc. described in 6
Item 7(a) above
99.3 PRO FORMA Financial Statements of TFP Inc. *
described in Item 7(b) above
99.4 Employment and Non-Competition Agreement - --
Barry B. White (incorporated by reference to
Exhibit 99.1 of Barry B. White's Schedule 13D
filed on May 16, 1997)
____________
*to be filed by amendment
<PAGE>
TFP INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TFP Inc.:
We have audited the accompanying consolidated balance sheet of TFP Inc. and
subsidiaries as of December 31, 1996 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TFP Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
February 17, 1997 KPMG Peat Marwick LLP
Raleigh, North Carolina
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TFP Inc.:
We have audited the accompanying consolidated balance sheet of TFP Inc. and
subsidiaries (the "Company") as of December 31, 1995 and the related
consolidated statements of operations, stockholders' deficit, and cash
flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company and subsidiaries as
of December 31, 1995, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Greenville, South Carolina
July 2, 1996
<PAGE>
TFP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 13,042 $ 65,356
Short-term investment 30,000 -
Accounts receivable, net of allowance for doubtful
accounts of $25,000 in 1995 and $93,000 in 1996 959,108 973,819
Related party accounts and notes receivable 9,228 10,764
Income taxes receivable 85,812 85,812
Inventory 333,492 167,888
Deferred tax assets - 156,000
Other assets 9,978 35,689
----------- -----------
Total current assets 1,440,660 1,495,328
Property and other equipment, net 438,531 505,948
Deferred tax assets - 128,000
Other assets 44,443 131,294
----------- -----------
Total assets $ 1,923,634 2,260,570
----------- -----------
----------- -----------
Liabilities and Stockholders' Equity (Deficit):
Current liabilities:
Current portion of obligation under capital lease $ - $ 39,710
Line of credit 139,848 -
Current portion of long-term debt 549,788 4,858
Accounts payable 595,649 464,011
Accrued expenses 310,478 364,010
Income taxes payable - 8,147
Customer deposits 279,118 106,795
Deferred revenue 552,200 903,913
Related party note payable - 55,000
----------- -----------
Total current liabilities 2,427,081 1,946,444
Obligation under capital lease, less current portion - 59,384
Long-term debt, less current portion 4,536 -
Other liabilities - 55,459
----------- -----------
Total liabilities 2,431,617 2,061,287
----------- -----------
Redeemable convertible preferred stock, no par value;
5,000,000 shares authorized; 903,615 shares issued and
outstanding at December 31, 1995 and 1996 722,612 772,612
Stockholders' equity (deficit):
Common stock, no par value; 15,000,000 shares authorized;
3,240,964 shares issued and outstanding at
December 31, 1995 and 1996 270,349 270,349
Accumulated deficit (1,512,426) (850,958)
Cumulative foreign currency translation adjustment 11,482 7,280
----------- -----------
Total stockholders' equity (deficit) (1,230,595) (573,329)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 1,923,634 $ 2,260,570
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TFP INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $4,994,495 $ 5,217,228 $7,217,650
Cost of revenues 2,542,020 2,945,799 3,461,460
---------- ----------- ----------
Gross profit 2,452,475 2,271,429 3,756,190
Selling, general and administrative expenses 2,538,281 3,618,770 3,139,107
---------- ----------- ----------
Income (loss) from operations (85,806) (1,347,341) 617,083
Other income (expense):
Interest expense, net (24,849) (77,013) (177,257)
Other income (expense), net 3,824 10,569 (5,358)
---------- ----------- ----------
Total other expense (21,025) (66,444) (182,615)
---------- ----------- ----------
Income (loss) before income taxes (106,831) (1,413,785) 434,468
Income tax provision (benefit) 48,000 (20,000) (277,000)
---------- ----------- ----------
Net income (loss) $ (154,831) $(1,393,785) $ 711,468
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TFP INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended December 31, 1994, 1995, and 1996
<TABLE>
<CAPTION>
Cumulative
Foreign Total
Currency Stockholders'
Common Accumulated Translation Equity
Stock Deficit Adjustment (Deficit)
----- ------- ---------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 83,031 $ 56,508 $ - $ 139,539
Foreign currency translation
adjustment - - 1,234 1,234
Net loss - (154,831) - (154,831)
--------- ------------ -------- -----------
Balance at December 31, 1994 83,031 (98,323) 1,234 (14,058)
Issuance of stock, net 187,318 - - 187,318
Accretion of redemption
premium on redeemable
convertible preferred stock - (20,318) - (20,318)
Foreign currency translation
adjustment - - 10,248 10,248
Net loss - (1,393,785) - (1,393,785)
--------- ------------ -------- -----------
Balance at December 31, 1995 270,349 (1,512,426) 11,482 (1,230,595)
Accretion of redemption
premium on redeemable
convertible preferred stock - (50,000) - (50,000)
Foreign currency translation
adjustment - - (4,202) (4,202)
Net income - 711,468 - 711,468
--------- ------------ -------- -----------
Balance at December 31, 1996 $ 270,349 $ (850,958) $ 7,280 $ (573,329)
--------- ------------ -------- -----------
--------- ------------ -------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TFP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(154,831) $(1,393,785) $ 711,468
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 71,424 206,075 183,200
Loss on sale of assets - - 8,218
Deferred income taxes (43,000) 43,000 (284,000)
Foreign currency translation 1,234 10,248 (4,202)
Changes in operating assets and liabilities:
Accounts receivable (772,908) 185,633 (14,711)
Lease receivable 31,187 - -
Income taxes receivable - (85,812) -
Inventory (798) (51,902) 165,604
Other current assets (27,101) 19,775 (25,711)
Other assets 10,889 (19,477) (86,851)
Accounts payable 367,673 (105,262) (131,638)
Accrued expenses 225,383 (82,774) 53,532
Income taxes payable 91,000 (91,000) 8,147
Customer deposits 92,379 159 (172,323)
Deferred revenue 130,042 269,468 351,713
Other long-term liabilities - - 55,459
--------- ---------- ---------
Net cash provided by (used in) operating activities 22,573 (1,095,654) 817,905
--------- ---------- ---------
Cash flows from investing activities:
Advance to officer (252,979) - -
(Purchase) maturity of short-term investment - (30,000) 30,000
Purchase of property and equipment (393,465) (24,196) (258,835)
Collection of advance to officer 284,608 84,386 (1,536)
--------- ---------- ---------
Net cash provided by (used in) investing activities (361,836) 30,190 (230,371)
--------- ---------- ---------
Cash flows from financing activities:
Net proceeds from issuance of stock - 689,612 -
Borrowings on line of credit, net - 139,848 (139,848)
Proceeds from related party note payable - - 55,000
Proceeds from issuance of debt 501,780 249,000 -
Principal payments on debt (129,677) (49,963) (549,466)
Proceeds from sales type lease - - 125,000
Payments on capital lease - - (25,906)
--------- ---------- ---------
Net cash provided by financing activities 372,103 1,028,497 (535,220)
--------- ---------- ---------
Increase (decrease) in cash and cash equivalents 32,840 (36,967) 52,314
Cash and cash equivalents, beginning of year 17,169 50,009 13,042
--------- ---------- ---------
Cash and cash equivalents, end of year $ 50,009 $ 13,042 $65,356
--------- ---------- ---------
--------- ---------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 39,474 $ 65,750 $179,752
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
Notes payable in the amount of $200,000 were converted to common stock in 1995.
Transfers in the amount of $245,626 were made from inventory to property and
equipment in 1995.
See accompanying notes to consolidated financial statements.
<PAGE>
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994, 1995 and 1996
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BASIS OF PRESENTATION
TFP Inc. ("TFP") is a privately-held company incorporated in 1989.
TFP's corporate headquarters are in Greenville, South Carolina and its
sales and support offices are located in Buffalo, New York; Dallas,
Texas; San Jose, California; Beaufort, South Carolina; Port Orange,
Florida; and Neu-Anspach, Germany. TFP develops, markets, sells and
fully supports complete "turnkey" computerized video electronic
image-based systems for law enforcement and correctional agencies
worldwide. TFP also sells computerized video electronic image-based
systems and document retrieval systems to non-law enforcement entities
including other governmental entities and private companies.
Effective August 1, 1994, the Company created TFP GmbH, a wholly owned
European subsidiary located in Frankfurt, Germany. The subsidiary
acts as the Company's European headquarters and sells TFP products in
the European market.
Also effective August 1, 1994, the Company purchased all of the
outstanding common stock of I Corp., a company wholly-owned by the
Company's President, Mr. Barry B. White. The stock was acquired for
$1,000 which was Mr. White's basis. I Corp. was incorporated in
February 1993 but had no activity until 1994. Due to common
ownership, the consolidated financial statements include the
operations of I Corp. for all of 1994 accounted for as a transaction
similar to a pooling of interests.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TFP and
its wholly owned subsidiaries, I Corp. and TFP GmbH (collectively, the
"Company"). All significant intercompany accounts and transactions
have been eliminated.
(c) REVENUE RECOGNITION
The Company's revenue, which consists primarily of fees for product
sales and software licenses, application engineering and support, is
recognized in accordance with AICPA Statement of Position 91-1,
"Software Revenue Recognition" as there are no significant vendor
obligations remaining and collection of the related receivable is
probable. The Company accounts for insignificant vendor obligations
by accruing such costs and recognizing them ratably on completion of
performance. Revenue from product sales and licenses is recognized
upon shipment of the product and/or fulfillment of acceptance terms.
Revenue from applications engineering is recorded as services are
provided. Revenue from support is deferred and recognized ratably
over the term of the support agreements. In instances where the
support is included with the product sale, the revenue applicable to
this support is estimated and recognized ratably over the support
period.
The Company continually evaluates its obligations with respect to
warranties, returns and refunds. Based on historical trends and
management's evaluation of current conditions, any potential
obligations that are inherent in the accounts receivable balance are
adequately provided for through the allowance for doubtful accounts.
<PAGE>
2
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
(d) CASH EQUIVALENTS
The Company considers short-term investments with a maturity at time
of purchase of three months or less to be cash equivalents. The
Company's short-term investment at December 31, 1995 represents a
certificate of deposit with an original maturity of greater than three
months.
(e) SOFTWARE DEVELOPMENT COSTS
Software development costs consist principally of salaries and certain
other expenses related to development and modifications of software
products. Such costs are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed". The Company's software development costs
incurred between the time technological feasibility is established and
the product is released are not material and are therefore, not
capitalized.
(f) INVENTORY
Inventory is valued using the lower of average cost or market.
Inventory is composed of computer parts and components.
(g) PROPERTY AND EQUIPMENT
Property and equipment is depreciated over the estimated useful lives
of the related assets. Maintenance and repairs are charged to
operations when incurred. Betterments and renewals are capitalized.
Effective January 1, 1996, the Company changed its method of
depreciating property and equipment from an accelerated method to the
straight-line method for financial statement purposes. The Company
believes that the straight-line method more appropriately reflects the
timing of the economic benefits to be received from these assets
during their estimated useful lives. The new method has been applied
to property and equipment held prior to January 1, 1996. Concurrent
with the change in depreciation methods, the Company revised the
estimated useful lives for property and equipment to more closely
reflect expected remaining lives.
The cumulative effect of adopting the new method of depreciation and
the revised estimates of useful lives, as well as the current year
effect on net income, was not material.
Also effective January 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" (Statement No. 121). Statement No. 121 had no impact on
the financial statements.
<PAGE>
3
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
(g) PROPERTY AND EQUIPMENT, CONTINUED
The useful lives of property and equipment for purposes of computing
depreciation are:
Vehicles 5 years
Furniture and fixtures 7 years
Computer equipment 3 - 5 years
Maintenance equipment 3 - 7 years
Leasehold improvements Term of lease
(h) STOCK OPTION PLAN
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (Statement No. 123). Statement No. 123 is
effective for fiscal years beginning after December 15, 1995.
Statement No. 123 requires that an entity recognize in its financial
statements the costs (determined by a fair value based method) related
to its employee stock-based compensation plans, such as stock option
and stock purchase plans.
Alternatively, Statement No. 123 allows an entity to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and, if earnings per share is presented, pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in Statement No. 123
had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of Statement No. 123.
(j) INCOME TAXES
The Company records income taxes under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under the asset and liability
method, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Prior to August 1, 1994, the Company was a S Corporation for federal
and state income tax purposes. Under the S Corporation election, the
Company's taxable income or loss was included in the income tax
returns of the then sole shareholder.
<PAGE>
4
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
(k) FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign subsidiary is the
German mark. Assets and liabilities are translated into U.S. dollars
at the exchange rate in effect at year end and results of operations
are remeasured at the average exchange rate for the year. Foreign
currency gains and losses resulting from translation are reported as a
separate component of stockholders' equity.
(l) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(m) RECLASSIFICATION
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1995 1996
---- ----
Vehicles $ 38,000 $ 38,000
Furniture and fixtures 23,137 23,137
Computer equipment 468,861 433,680
Maintenance equipment 133,905 271,193
Leasehold improvements 59,909 59,909
--------- ---------
723,812 825,919
Less accumulated depreciation
and amortization (285,281) (319,971)
--------- ---------
$ 438,531 $ 505,948
--------- ---------
--------- ---------
At December 31, 1996, net assets under capital leases amounted to $97,222.
(3) LINE OF CREDIT
On May 10, 1995, the Company obtained a $250,000 inventory financing credit
line from FINOVA Capital Corporation ("FINOVA"). Interest on balances
outstanding on the credit line was charged at prime (8.5% at December 31,
1995). The agreement with FINOVA was terminated in February of 1996,
resulting in the repayment of all outstanding balances, including unpaid
interest.
<PAGE>
5
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) LONG-TERM DEBT
Long-term debt consists of the following at
December 31:
1995 1996
---- ----
Prime plus 1.25% (9.75% at December 31, 1995)
credit line; maximum amount available was
$130,000; paid in April 1996 $129,960 $ -
Prime plus 1.5% (10.0% at December 31, 1995)
credit line; maximum amount available was
$120,000; paid in April 1996 120,000 -
Prime plus 1.5% (10% at December 31, 1995)
note; payable in monthly installments of $610,
including interest, through August 1997;
secured by a vehicle 11,340 4,858
Prime plus 1.25% (8.625% at December 31, 1995)
Industrial Revenue Bonds Series 1994 A; paid
in April 1996 293,024 -
-------- --------
Total 554,324 4,858
Less current portion 549,788 4,858
-------- --------
Long-term debt, less current portion $ 4,536 $ -
-------- --------
-------- --------
At December 31, 1995, the Company was in default of certain provisions of
its existing loan agreements. As a result of such default, a lender
demanded and received, by April 1996, full payment of all outstanding
long-term debt, other than the note payable which is secured by a vehicle.
Accordingly, all long-term debt, other than the applicable portion of the
vehicle loan, has been classified as a current liability in the
accompanying December 31, 1995 consolidated balance sheet.
(5) INCOME TAXES
The components of the provision (benefit) for income taxes for the years
ended December 31, 1994, 1995 and 1996 are as follows:
CURRENT DEFERRED TOTAL
------- -------- -----
1994
----
Federal $ 80,000 (43,000) 37,000
State 11,000 - 11,000
-------- -------- -------
Total $ 91,000 (43,000) 48,000
-------- -------- -------
-------- -------- -------
<PAGE>
6
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) INCOME TAXES, CONTINUED
Current Deferred Total
------- -------- -----
1995
----
Federal $ (58,000) 43,000 (15,000)
State (5,000) - (5,000)
--------- --------- --------
Total $ (63,000) 43,000 (20,000)
--------- --------- ---------
--------- --------- ---------
1996
----
Federal $ 7,000 (320,731) (313,731)
State - 36,731 36,731
--------- --------- ---------
Total $ 7,000 (284,000) (277,000)
--------- --------- ---------
--------- --------- ---------
The income tax provision (benefit) differed from an amount computed by
applying the federal income tax rate of 35% for 1994 and 1995 and 34% for
1996, as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense $(37,391) $(494,825) $ 147,719
Increase (reduction) in income taxes resulting from:
Portion of losses not benefited as a result of the
establishment of a valuation allowance - 415,000 -
Change in the beginning of the year balance of
the valuation allowance for deferred
tax assets allocated to income expense - _ (425,000)
Realization in the current year of a tax benefit
relating to a carryforward amount more
than the amount recognized at the
beginning of the year - - (47,690)
Exclusion of foreign subsidiary loss 24,532 47,239 15,267
Exclusion of S corporation loss 79,287 - -
Research and development tax credits (29,136) - -
State income taxes, net of federal benefit 7,150 - 24,242
Other items, net 3,558 12,586 8,462
-------- --------- ---------
Provision (benefit) for income taxes $ 48,000 $ (20,000) (277,000)
-------- --------- ---------
-------- --------- ---------
</TABLE>
<PAGE>
7
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) INCOME TAXES, CONTINUED
The Company has deferred tax assets and liabilities as follows at
December 31:
1995 1996
---- ----
Deferred tax assets:
Net operating loss and credit carryforwards $ 469,000 $ 218,000
Accrued expenses and allowances
deductible for books, but not for tax 41,000 156,000
Property and other equipment, principally
due to differences in depreciation 19,000 17,000
---------- ----------
529,000 391,000
Less: Valuation allowance (525,000) (100,000)
---------- ----------
4,000 291,000
Deferred tax liability:
Other assets deductible for tax (4,000) (7,000)
---------- ----------
Net deferred tax assets $ - $ 284,000
---------- ----------
---------- ----------
The Company has provided a valuation allowance for the portion of the
deferred tax asset for which it is more likely than not that a tax benefit
will not be realized. This valuation allowance results primarily from
foreign net operating loss carryforwards. Subsequently recognized tax
benefits relating to the valuation allowance for deferred tax assets as of
December 31, 1996 will be recorded as an income tax benefit in future
consolidated statements of operations.
At December 31, 1996, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $165,000 which are
available to offset future taxable income, if any, through 2010. In
addition, the Company has net operating loss carryforwards from its foreign
subsidiary totaling approximately $240,000 which expire from 1999 through
2001, research and development credit carryforwards totaling $55,000 which
expire in 2009 and 2010, and alternative minimum tax credit carryforwards
of approximately $9,000 which are available to reduce future federal
regular income taxes, if any, over an indefinite period.
<PAGE>
8
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) PRIVATE PLACEMENT OF STOCK
On August 21, 1995 the Company closed a private placement in the amount of
$950,000 as follows:
Number Price
of Per
Shares Share Amount
------ ----- ------
Series A Preferred Stock 903,615 $ 0.83 $ 750,000
Common Stock 240,964 0.83 200,000
---------
$ 950,000
---------
---------
The common stock was issued through conversion of $200,000 in notes
payable. The preferred stock represents funds received by the Company on
August 21, 1995. All shareholders have been granted a preemptive right to
purchase shares of any future equity offerings sufficient to maintain their
percentage interest in the Company. Additionally, prior to the sale of
shares to a third party, a shareholder must provide a right of first
refusal first to the Company and then to the remaining shareholders.
Additionally, Mr. White, must obtain the approval of the preferred
stockholders to sell more than 15% of his 3,000,000 outstanding shares
(450,000 shares).
Each share of preferred stock is convertible into one share of common stock
anytime at the option of holders and must be converted in the event of a
public offering of at least $10 million at $10 per share. The preferred
stock is redeemable by the Company at the option of the holders beginning
on the sixth anniversary of the date of issuance. In the event of
redemption of the preferred stock, or merger or liquidation of the Company,
the preferred stockholders will be entitled to a redemption premium of
eight percent per annum, up to $300,000, with the stock being redeemed
quarterly over a three year period. The preferred stock redemption premium
of $300,000 is being accreted over six years. In the event the preferred
stock is redeemed by action of its holders, $175,000, $350,000, $350,000
and $175,000 would be redeemed in 2001, 2002, 2003 and 2004, respectively.
(7) RELATED PARTY TRANSACTIONS
An individual who served as a director for the Company through October 1995
is a principal with a company which had a consulting arrangement with the
Company. During 1994 the Company incurred costs in the amount of $24,000
for financial services provided by this company in connection with its
private placement offering (see Note 6). Such costs were deferred at
December 31, 1994 and have been offset against the proceeds from the
offering in 1995.
Mr. White is the sole stockholder of White Aviation, Inc. of Greenville
(White Aviation), an S Corporation incorporated in July of 1992 to provide
aviation transportation services. These consolidated financial statements
do not include the accounts of White Aviation. The Company incurred
expense of $16,800 in 1994 for transportation services provided by White
Aviation. No expenses were incurred in 1995 and 1996.
The Company has advanced funds to Mr. White and holds a 10% unsecured note,
payable on demand. The amount outstanding was $9,228 and $10,764 at
December 31, 1995 and 1996, respectively, and is presented as related party
accounts and notes receivable.
<PAGE>
9
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) RELATED PARTY TRANSACTIONS, CONTINUED
In February of 1996, the Company became indebted under an unsecured note
from a relative of Mr. White. The amount of debt outstanding at December
31, 1996 is $55,000 at an interest rate of 12% and is payable on demand.
During 1994 the Company leased its corporate headquarters building under a
month-to-month lease with Mr. White. Under the lease arrangement, the
Company paid $63,250 during 1994 which was used to reduce Mr. White's note
receivable.
Effective January 1, 1995, the Company entered into a ten year operating
lease agreement with Mr. White on the corporate headquarters building (see
Note 11). Annual payments required by the lease are approximately $69,000.
(8) EMPLOYEE BENEFITS PLANS
Effective August 1, 1994, the Company's Board of Directors approved a stock
option plan which provides for the grant of incentive stock options and
nonqualified stock options to any officer, employee or director for the
purchase of up to an aggregate of 360,000 shares of the Company's common
stock. The options vest 20% per year beginning on the third anniversary
date of the grant and expire after ten years. No options were granted
under the plan prior to 1994.
A summary of activity in the plan during the periods indicated are as
follows:
Weighted -
Number of Average
Shares Exercise Price
------ --------------
Stock options outstanding:
Balance at December 31, 1994 - -
Granted 261,500 .83
------- ---------
Balance at December 31, 1995 261,500 .83
Granted 173,500 .99
Terminated (90,000) .83
------- ---------
Balance at December 31, 1996 345,000 .91
------- ---------
------- ---------
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $.83 - $1.00 and 9.2
years, respectively. At December 31, 1995 and 1996 no options were
exercisable.
The per share weighted-average fair value of stock options granted during
1995 and 1996 was $.44 and $.53 on the date of grant using the minimum
value method with the following weighted-average assumptions: 1995 -
expected dividend yield 0%, risk-free interest rate of 6.5%, and an
expected life of 10 years; 1996 - expected dividend yield 0%, risk-free
interest rate of 6.5%, and an expected life of 10 years.
<PAGE>
10
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) EMPLOYEE BENEFITS PLANS, CONTINUED
The Company applies APB Opinion No. 25 in accounting for its stock option
plan and, accordingly, no compensation cost has been recognized for option
grants in the financial statements. The effect on the net income (loss)
for 1995 and 1996 would not have been material had the Company accounted
for compensation cost based on the fair value at the grant date for stock
options in the plan under Statement No. 123.
(9) WARRANTS
In May 1996, as additional consideration for entering into a capital lease
agreement, the Company granted a warrant to purchase 1,500 shares of common
stock of the Company at $5.00 per share to an unrelated third-party. The
warrants are exercisable upon termination of the lease in April 1999. In
the event of default on the lease terms, the Company will be required to
grant an additional warrant to purchase 1,500 shares of common stock of the
Company at $5.00 per share. Using the minimum value method, the fair value
of the warrants issued was not material at the date of issuance.
As of December 31, 1996, none of the warrants issued by the Company have
been exercised and 1,500 shares of common stock are reserved for issuance
under the warrants.
(10) COMMITMENTS
In June 1995, TFP entered into a three year contract with a company under
which it agreed to purchase the rights and licenses to certain software
products and the company agreed to provide certain services to TFP. The
total cost of the contract is $160,000. TFP's remaining commitment under
the contract is as follows:
1997 $40,000
1998 30,000
-------
Total $70,000
-------
-------
The Company has entered into an employment contract with the general
manager of TFP GmbH which guarantees annual compensation and reimbursement
of certain expenses of $100,000 through 1997.
In February 1996, the Company entered into an agreement with J.T.A. Factors
(the "Factor") to sell approved trade accounts receivable with recourse.
Under the agreement, the Company is to receive 85% of the face amount at
the time the related receivable is sold. Upon collection of the receivable
by the Factor, the Company receives the remaining 15%, less the required
finance charge. The Factor's finance charge is equal to 1.82% per month of
the face amount of receivables factored. Approximately $432,000 of trade
accounts receivable have been factored at December 31, 1996. The Company
recorded finance charges (included in interest expense in the accompanying
statement of operations) of approximately $10,000 and $139,000 in 1995 and
1996, respectively, relating to the factoring of receivables.
<PAGE>
11
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) LEASES
CAPITAL AND OPERATING
The Company leases its corporate headquarters building (see Note 7) and
certain equipment under noncancelable operating leases. Such leases
provide for terms ranging from four to ten years.
Future minimum lease payments under capital and noncancelable operating
leases expiring at various dates through 2004 are as follows:
Capital Operating
Leases Leases
------ ------
1997 $ 48,334 $ 63,118
1998 52,728 63,118
1999 17,576 63,118
2000 - 63,118
2001 - 63,118
Thereafter - 189,353
-------- --------
Total future minimum lease payments 118,638 $504,943
--------
--------
Less amount representing interest
(at rate of 16%) 19,544
--------
Present value of net minimum capital
lease payments 99,094
Less current installments of obligations
under capital lease 39,710
--------
Obligations under capital lease,
excluding current installments $ 59,384
--------
--------
Rent expense associated with the operating leases for the years ended
December 31, 1994, 1995, and 1996 totaled $68,830, $76,775, and $66,059,
respectively.
<PAGE>
12
TFP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) LEASES, CONTINUED
CAPITAL AND OPERATING
In February 1996, the Company entered into a sales-type lease for computer
equipment. Future minimum lease payments receivable under the sales-type
lease expiring in 2000 are as follows:
Sales-Type
Lease
-----
1997 $ 22,644
1998 22,644
1999 22,644
2000 22,644
--------
Total future minimum lease payments receivable 90,576
Less unearned income 8,400
--------
Net investment in sales-type lease $ 82,176
--------
--------
(12) SUBSEQUENT EVENT (UNAUDITED)
On May 7, 1997, Printrak International, Inc. (Printrak) acquired all of the
issued and outstanding capital stock of the Company, in accordance with the
terms and conditions of the Agreement and Plan of Reorganization and
Merger dated as of April 7, 1997, in exchange for 1.4 million shares of
Printrak common stock.
