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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
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)
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DELAWARE 33-0070547
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
1250 NORTH TUSTIN AVENUE ANAHEIM, 92807
CALIFORNIA (Zip Code)
(Address of principal executive offices)
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(714) 238-2000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.0001
par value
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. /X/ Yes No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the Registrant's Common Stock held by
non-affiliates on May 31, 1997 (based upon the average of the high and low sales
prices of such stock on such date) was $45,705,000.00.
As of May 30, 1997, 11,108,108 shares of the issuer's common stock, par
value $0.0001 per share, were outstanding.
The Registrant's definitive Proxy Statement for its 1997 Annual Meeting of
shareholders to be held on August 15, 1997 is incorporated by reference in Part
III of this Form 10-K to the extent stated. Except with respect to information
specifically incorporated by reference in this Form 10-K, the Proxy Statement is
not deemed to be filed as a part hereof.
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PRINTRAK INTERNATIONAL INC.
FORM 10-K
For the Fiscal Year Ended March 31, 1997
INDEX
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PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Results of Operations and Financial
Condition
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
Signatures
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PART I
ITEM 1. BUSINESS
GENERAL
Printrak International Inc. (the "Company") designs, develops and assembles
automated fingerprint identification systems (AFIS) primarily for use in law
enforcement applications, as well as in the emerging civil and commercial
identification markets. The Company was founded as a division of Rockwell
International in the 1970's and was purchased by the Company's current
management from De La Rue, Inc., a British Company, in 1991. The Company filed a
Registration Statement on Form S-1 with the Securities and Exchange Commission
in May 1996, and its stock began public trading on July 2, 1996. The Company's
AFIS systems have been sold in approximately 25 countries and are presently
utilized by over 250 local, state and federal agencies.
On May 7, 1997, the Company acquired all of the issued and outstanding
capital stock of TFP Inc. ("TFP"), a South Carolina corporation. As a result of
the transaction, TFP became a wholly-owned subsidiary of the Company. Founded in
1988, TFP is considered the premier supplier of digital mugshot systems used by
law enforcement, jail and correctional agencies. TFP's software applications
also include jail management, jail property management and document management.
TFP has approximately 250 customers in the United States, New Zealand, and
certain parts of Europe.
The Company's fiscal year ends on March 31 and references to a fiscal year
denote the calendar year in which the fiscal year ended; for example, "fiscal
1997" refers to the 12 months ended March 31, 1997.
PRODUCTS
The following hardware and software products represent the Company's current
product offerings:
AUTOMATED FINGERPRINT IDENTIFICATION SYSTEMS
The Company's sixth generation system, the AFIS 2000 series of products,
represents a comprehensive fully-integrated systems architecture for the capture
and input of images, image processing, search processing and database
management. Each system is comprised of: (1) workstations, for fingerprint input
from hard copy or live-scan digitized data, as well as for data input,
verification, latent print entry and search, and, if required, mugshot capture;
(2) networks, which connect live-scan or other remote devices to a central
operating site; (3) image processing technology, for extracting the searchable
features from raw fingerprint data; (4) scaleable search processing technology,
for matching these extracted features against the agencies database; and (5)
data storage and retrieval systems, large databases which house the compressed
fingerprint data. Additionally, the Company provides software which allows an
agency to customize its workflow based on individual agency specifications.
The Company's systems give agencies the ability to integrate several types
of criminal records data, such as fingerprint, criminal history, mugshot and
judicial records data, using a single user platform. This ability allows such
agencies to increase the efficiency of their investigation, booking, suspect
identification, processing and release functions. Additionally, the real-time
capabilities of the Company's AFIS 2000 systems enable law enforcement agencies
to verify the identity of suspects during the booking process and thus prevents
the need to release a subject while a fingerprint search is being conducted.
The Company's AFIS 2000 system is based on UNIX open systems hardware and
software. A portion of the Company's development efforts are presently
concentrated on implementing PC-based applications for use in a "Windows NT"
based operating environment.
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CRIMINAL HISTORY SYSTEMS
The Company creates systems designed to store and retrieve arrest and
prosecution records. The records typically include various demographic
information, fingerprints, photographs, arrest charges, as well as information
concerning the disposition of the case and the incarceration/parole of the
individual.
The database information is collected through a variety of input devices
which can include real-time interfaces and electronic update. Additionally,
manual input through either document scanning or the keying of paper based
documents can also be accomplished. Criminal history systems are usually
required to have numerous interfaces to other law enforcement applications, and
these interfaces provide real-time responses to requests from on duty field
officers, updates to state or national identity databases, as well as the
ability to share criminal information with agencies in other states.
Customers for the Company's criminal history systems include national law
enforcement agencies, state/provincial and local police agencies. Because each
customer has a unique workflow based on their agencies policies, the Company
responds by offering tailored software, along with standard hardware solutions.
DOCUMENT IMAGING SYSTEMS
The Company's document imaging and management system for the public safety
market, ActiveDoc(TM), is a comprehensive suite of software for capturing,
processing, organizing, storing, and accessing information including document
images, text and graphic data, voice and sound clips, video clips, photographs,
graphics, fingerprint images, mugshots, and office automation documents.
ActiveDoc is based on a highly scaleable client server architecture, and the
software accommodates a single laptop computer or a large database with
thousands of users. ActiveDoc runs on Windows 95 and Windows NT 4.0 operating
platforms, and the software interfaces with leading database systems including
Microsoft SQL Server, Sybase, Oracle, and Informix.
The Company's ActiveDoc software provides all of the document management
functionality required by a public safety agency including the ability to access
data with a single viewer. For example, a law enforcement officer could view all
related criminal incidents, fingerprints, mugshots, and dispositions for an
individual with a single query. In addition to the standard ActiveDoc viewer,
all document data can also be viewed using a standard Internet browser. User
authentication and data encryption are utilized for security to limit data
access to authorized users.
DIGITAL PHOTO
With the acquisition of TFP, the Company expands its product offering in
mugshot systems and adds jail management products. TFP's "Instant-Image" system
is a computerized photo imaging system designed expressly for law enforcement
agencies and correctional facilities. The system replaces conventional methods
of taking, processing, and storing photographs and related crime scene
information. With the "Instant-Image" system, images are captured by video input
devices then stored on the computer for later retrieval. Stored images are
linked to data through powerful, high-speed databases. Image installations range
from stand-alone workstations to complex wide-area networks where multiple
agencies share information. Furthermore, agencies configure the database based
on their particular user requirements.
JAIL MANAGEMENT
The Company's jail management system assists jail administrators and staff
in analyzing inmate populations and in developing the most effective jail
policies. The system provides comprehensive inmate background information
including: past and present incarcerations, criminal histories, current offense
and court status, and prior institutional behavior. By allowing jail
administrators the ability to identify potential problem inmates, house similar
inmates together, and target direct supervision toward those inmates who
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require it most, problems are minimized. The JAMIS software also includes
statistical inmate reporting, calculates release dates, and provides software
for inmate accounting.
Additionally, the Company provides the following services to complement its
product offerings:
FILE CONVERSION
The file conversion function converts agencies' tenprint cards into an
electronic format. This process includes capture of images, entry or download of
descriptive data, automatic encoding and classification of prints, quality
review, identification of duplicates, database creation synchronization, as well
as database loading. Other services include the conversion of palm print and
mug-shot records, and the conversion of data from existing databases on previous
generation systems.
SYSTEM MAINTENANCE
The Company typically warrants its AFIS 2000 system for a period of 12
months, such warranty includes full support and maintenance. In addition, the
Company sells annual maintenance contracts to most of its customers, which
provide for system maintenance, ongoing technical support, system documentation
materials and user training.
COMPETITION
The market for law enforcement information systems is competitive and is
characterized by rapidly changing technology. Historically, the principal
competitors in the market for AFIS systems within the law enforcement
information systems market have been Printrak, Nippon Electronics Corporation
(NEC), and SAGEM Morpho, a large, privately held company based in France. NEC
and SAGEM Morpho each has the technological and market expertise to provide
large scale AFIS solutions, and each has substantially greater financial
resources than the Company.
In the ten fingerprint live-scan market, the Company's principal competitors
are Identix Inc. and Digital Biometrics Incorporated, although other competitors
are also present within the marketplace. The nature of competition in this
market is centered primarily on system functionality, image quality, price,
service, and ease of integration into other systems within the customer's
environment.
In civil and commercial applications encompassing fingerprint identification
technologies, there are many recent market entrants including IBM, TRW, NRI, as
well as others. The Company competes in these markets on the basis of system
functionality, price and customer service.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company currently holds four patents and has two patent applications
pending in the United States, holds three patents in Europe and five in Canada,
and will file additional patent applications as appropriate. The Company's
patents relate to algorithms for image processing, high-speed print comparison,
and live-scan imaging techniques. Although the Company has implemented numerous
protective measures and intends to defend its proprietary rights, policing
unauthorized use of the Company's technology or products is difficult and there
can be no assurance that these measures will be successful. In addition, the
laws of certain foreign countries may not protect the Company's proprietary
rights to the same extent as do the laws of the United States. There can be no
assurance that the claims allowed by the Company's patents will be sufficiently
broad to protect the Company's technology. In addition, there can be no
assurance that any patents that may be issued to the Company, or which the
Company may license from third parties, will not be challenged, invalidated or
circumvented, or that any rights granted would ultimately provide protection to
the Company.
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RESEARCH AND PRODUCT DEVELOPMENT
The Company considers research, development and engineering to be a vital
part of its operating discipline and continues to make substantial investments
in research, development and engineering to enhance the performance,
functionality and reliability of its hardware and software products, as well as
to develop new product offerings. During the fiscal years ended March 31, 1997,
1996 and 1995, the Company invested 17.3%, 18.7%, and 16.0%, respectively, of
its revenues in research, development and engineering.
MANUFACTURING AND SOURCING PRODUCTS
The Company's manufacturing operations consist primarily of the integration
and testing of off the shelf components, such as computers and disks, and of
subsystems and computer assemblies. Substantially all assemblies are
manufactured by outside vendors based on specifications provided by the Company.
The Company generally purchases major assemblies from a single vendor as
this promotes higher quality, prompt delivery and aids cost savings. The Company
is dependent upon the ability of vendors to deliver these items in accordance
with the Company's specifications and delivery schedules. The failure of these
suppliers to deliver on schedule could delay or interrupt the Company's delivery
of products and thereby adversely affect the Company's operating results. To
date, the Company has not experienced any delays in deliveries from its
suppliers which have had an impact on its business.
As a turnkey supplier of AFIS solutions, the Company also provides file
conversion services which allow the customer's existing database of hardcopy
records to be electronically encoded prior to delivery of a Printrak AFIS
system. This file conversion service is performed at the Company's headquarters
in Anaheim, California.
CUSTOMER SERVICE AND SUPPORT
The Company believes that excellent customer service and support is
essential to its success and has committed significant resources to these
functions. As part of the Company's warranty and maintenance service agreements,
on-site maintenance service is provided for AFIS systems five days per week,
eight hours per day, during normal working hours and telephone support twenty
four hours per day, seven days per week. The Company's customer support center
is designed to provide focused hardware and software support to customer sites
via a designated phone number. Printrak's service organization includes customer
service engineers, who provide on-site support and maintenance, and product
support engineers, who are primarily located in the Company's headquarters
facility or in regional offices.
The Company sells annual maintenance service agreements to most of its
customers, which provide for system maintenance, ongoing technical support,
system documentation materials, and user training. Typically, the price of an
AFIS system includes a 12 month warranty which includes full support and
maintenance. Individual components are typically warranted for 90 days.
BACKLOG
The Company measures its backlog of system revenues as orders for which
contracts or purchase orders have been signed, but which have not yet been
shipped and for which revenues have not been recognized. The Company typically
ships its products within six to nine months after receiving an order, however,
in some instances, products are delivered on a shorter delivery schedule. As of
March 31, 1997, the Company's system revenue backlog was approximately $13.1
million, compared to $29.5 million as of March 31, 1996.
Orders comprising the Company's backlog may include requirements for custom
software development or file conversion which may require extensive resources to
be completed prior to shipment. Any failure of the Company to meet an agreed
upon schedule could lead to the cancellation of the related order. The Company
believes that it is important for competitive reasons and to better satisfy
customer
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requirements to reduce order lead times. Additionally, variations in the size,
complexity and delivery requirements of customer orders may result in
substantial fluctuations in backlog on a regular basis. Accordingly, the Company
believes that backlog is not a meaningful indicator of future financial
performance.
EMPLOYEES
As of March 31, 1997, the Company employed 287 people on a full-time basis,
268 domestically and 19 internationally. Of this total, 67 were in research,
development and engineering, 83 in customer support, 66 in assembly, materials
and file conversion services, 38 in sales and marketing, and 33 in finance and
administration. Printrak's success is highly dependent on its ability to attract
and retain qualified employees. Competition for employees is intense in the
software industry. To date, the Company believes it has been successful in its
efforts to recruit and retain qualified employees, but there is no assurance
that it will continue to be as successful in the future. None of the Company's
employees are subject to collective bargaining agreements. The Company believes
that its relations with its employees are good.
CERTAIN CONSIDERATIONS
The Company's future operating results, and stock price, may be affected by
a number of factors that could cause actual results to differ from those stated
herein. These factors include the following:
DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATION
In any given fiscal year, the Company's revenues have principally consisted,
and will continue to consist, of large orders from a limited number of
customers. While the individual customer may vary from period to period, the
Company is still dependent upon large orders for a significant portion of its
total system revenues. During the fiscal year ended March 31, 1997, revenues
from the Royal Canadian Mounted Police and the Florida Department of Law
Enforcement were $9.0 million, or 15.3%, and $6.9 million, or 11.7%,
respectively, of the Company's total revenues. During the fiscal year ended
March 31, 1996, revenues from the State of Louisiana were $8.3 million, or 18.2%
of the Company's total revenues. For the fiscal year ended March 31, 1995,
revenues from the Criminal Intelligence Service of the Netherlands and the Royal
Canadian Mounted Police were $2.7 million, or 10%, and $2.5 million, or 9.1%,
respectively, of the Company's total revenues. There can be no assurance that
the Company will continue to obtain such large orders on a consistent basis, and
as such, the Company's inability to obtain sufficient large orders would have a
material adverse effect on the Company's business, operating results and
financial condition. Moreover, the timing and shipment of such orders may cause
the operating results of the Company in any given quarter to differ from
projections of securities analysts which could adversely affect the trading
price of the Company's Common Stock.
LENGTHY SALES AND COLLECTION CYCLE
The sale of the Company's products is often subject to delays associated
with the lengthy approval processes that typically accompany large capital
expenditures. The Company's total revenues depend in significant part upon the
decision of a government agency to upgrade and expand existing facilities, alter
workflows, and hire additional technical expertise in addition to procuring the
Company's products, all of which involve a significant capital commitment as
well as significant future support costs. The Company's systems therefore often
have a lengthy sales cycle while the customer evaluates and receives approvals
for the purchase of the Company's products, while existing workflows are
augmented so as to properly assimilate the Company's system, and while the
system is configured and shipped. Typically, the evaluation and execution of a
customer contract may take one year. Another six to nine months elapse while the
system is configured, file conversion services are performed and the customer
site is prepared. As such, it is not uncommon for the sales cycle to approximate
two years. During this time, the Company expends substantial resources yet
receives no associated revenue. Any significant failure by the Company to
execute
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a contract after expending such effort and funds could have a material adverse
effect on its business, operating results and financial condition.
A customer contract typically provides payment terms associated with the
achievement of certain contractual milestones. Often, the contract provides for
a customer deposit at contract signature, however, much of the customer's
payment may ultimately be associated with the delivery and final acceptance of
the complete system. Because the system configuration, file conversion, and
system acceptance testing consumes a six to nine month time period, the
Company's collection cycle is often quite lengthy. As such, the Company expends
substantial resources but may not receive payment from the customer until the
completion of a substantial portion of the contract. Any significant failure by
the Company to perform to the requirements of a specific contract could have a
material adverse effect on its business, operating results and financial
condition.
DEPENDENCE ON CAPITAL SPENDING BY PUBLIC AGENCIES
Substantially all of the Company's revenues are derived from the sale and
maintenance of AFIS products delivered to domestic and foreign governmental
agencies, particularly law enforcement agencies. The decision to purchase an
AFIS system generally involves a significant commitment of capital and frequent
delays are often associated with significant capital expenditures. The Company's
future performance is directly dependent upon the capital expenditure budgets of
its customers and the continued demand by such customers for AFIS products. Many
domestic and foreign governmental agencies have experienced budget deficits that
have also led to significant reductions in capital expenditures. The Company's
operations in the future may be subject to period-to-period fluctuations as a
consequence of such deficits or other negative factors affecting capital
spending. There can be no assurance that such factors will not have a material
adverse effect on the Company's business, operating results and financial
condition.
RISKS ASSOCIATED WITH EXPANSION INTO ADDITIONAL MARKETS; RELIANCE ON TEAMING
ARRANGEMENTS
The Company believes that its future performance is, in part, dependent upon
its ability to successfully develop and market AFIS technology for use outside
of the law enforcement market. These markets may include the detection of
welfare fraud, voter registration and identification, verification of
immigration status, drivers' license identification and verification of
eligibility of pension or medical benefits. There can be no assurance that any
of these products, once developed, will achieve market acceptance.
In order to pursue civil and commercial applications, the Company has
entered into and will continue to enter into, where appropriate, teaming
arrangements with third party system integrators. There can be no assurance
regarding the performance of such third parties, or the overall success, if any,
of such teaming arrangements.
RISKS ASSOCIATED WITH ACQUISITIONS
An important element of the Company's strategy is to expand its operations
by acquiring companies with complementary product offerings in order to augment
market coverage and strengthen technological capabilities. The Company has
recently completed the acquisition of TFP Inc., and the Company may make
additional acquisitions of businesses, products or technologies in the future.
These acquisitions may result in dilutive issuances of securities, the
incurrence of debt and amortization expenses related to goodwill or other
intangible assets. Any of these factors could adversely affect the Company's
business, operating results and financial condition.
Acquisitions present and will continue to present the Company with numerous
challenges, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies, as well as managing
separate geographic operations of the consolidated company. These challenges
absorb and may continue to absorb significant management attention that would
otherwise be available to the
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ongoing development of the Company's business. Moreover, there can be no
assurance that the anticipated benefits of any acquisition will ultimately be
realized. The Company and the acquired companies could experience difficulties
or delays in integrating their respective technologies or developing and
introducing new products. If the Company's management does not effectively
respond to these challenges, the Company's business, operating results and
financial condition could be adversely affected.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases an approximately 88,000 square foot facility in Anaheim,
California, from a company controlled by the Company's Chairman and Chief
Executive Officer, Richard M. Giles. This building is used as the Company's
headquarters and includes administration, engineering and development, marketing
and sales, customer service, and manufacturing facilities. Additionally, the
Company leases office space in Basingstoke, England which is used for
international sales and customer support activities.
The Company's management has determined the Anaheim facility is not
sufficient to support the Company's growth and long-term strategic plan. As
such, the Company's management is presently evaluating a long-term facilities
plan which will ultimately include relocating the Company to a more suitable
facility.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $.0001 per share (the "Common Stock"),
is traded on the Nasdaq National Market under the symbol "AFIS". The table below
establishes the high and low sale prices for the Common Stock for the period
from July 2, 1996, when public trading of the Common Stock commenced, through
March 31, 1997 (as reported on the Nasdaq National Market). The last reported
closing price of the Common Stock on the Nasdaq National Market on May 30, 1997
was $12.13.
FISCAL QUARTER ENDED:
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HIGH LOW
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September 30, 1996 (commenced trading July 2, 1996)......................... $ 10.63 $ 6.38
December 31, 1996........................................................... 11.13 7.63
March 31, 1997.............................................................. 12.75 8.00
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As of May 30, 1997, there were 102 holders of record based on the records of
the Company's transfer agent which does not include beneficial owners of Common
Stock whose shares are held in the names of various securities brokers, dealers
and registered clearing agencies. The Company estimates that there are
approximately 1,300 stockholders.
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The terms of the Company's revolving credit agreement restrict the ability
of the Company to pay dividends on the Common Stock. Any payment of future
dividends will be at the discretion of the Company's Board of Directors and
depend upon, among other things, the Company's earnings, financial condition,
capital requirements, extent of indebtedness, as well as any other contractual
restrictions. The Company does not anticipate paying cash dividends on the
Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below for the periods and
the dates indicated and summary consolidated financial data are derived from the
audited consolidated financial statements of the Company. The statement of
operations data for each of the three fiscal years to the period ended March 31,
1997, and the balance sheet data at March 31, 1996 and 1997, are derived from
the audited consolidated financial statements and notes thereto that have been
audited by Deloitte & Touche LLP, independent auditors, which are included
elsewhere in this report, and are qualified by reference to such financial
statements and notes related thereto. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this report.
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YEAR ENDED MARCH 31,
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1993 1994 1995 1996 1997
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STATEMENT OF OPERATIONS DATA:
Revenues:
System................................................. $ 19,711 $ 17,910 $ 17,553 $ 35,806 $ 49,125
Maintenance............................................ 7,327 8,208 9,246 9,911 9,740
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Total revenues......................................... 27,038 26,118 26,799 45,717 58,865
Cost of revenues (1)..................................... 15,644 13,441 15,275 26,121 30,565
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Gross profit............................................. 11,394 12,677 11,524 19,596 28,300
Operating expenses:
Research, development and engineering.................. 686 3,630 4,301 8,558 10,186
Selling, general and administrative.................... 5,722 7,028 7,320 9,776 11,541
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Total operating expenses............................... 6,408 10,658 11,621 18,334 21,727
Operating income (loss).................................. 4,986 2,019 (97) 1,262 6,573
Other income, net........................................ 1,046 984 1,341 940 272
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Income before provision for income taxes and cumulative
effect of accounting change............................ 6,032 3,003 1,244 2,202 6,845
Provision for income taxes............................... 244 1,001 218 366 2,417
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Income before cumulative effect of accounting change..... 5,788 2,002 1,026 1,836 4,428
Cumulative effect of accounting change (2)............... -- 5,750 -- -- --
--------- --------- --------- --------- ---------
Net income............................................... $ 5,788 $ 7,752 $ 1,026 $ 1,836 $ 4,428
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share..................................... $ 0.80 $ 1.08 $ 0.14 $ 0.25 $ 0.46
Weighted average common and common equivalent shares
outstanding............................................ 7,200 7,200 7,200 7,396 9,563
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........ $ 1,222 $ 1,799 $ 1,272 $ 3,518 $ 8,333
Working capital.......................................... 6,196 5,657 6,038 10,916 25,743
Total assets............................................. 14,966 24,486 28,078 32,945 47,615
Long-term liabilities.................................... 3,796 5,378 7,549 5,614 1,631
Total stockholders' equity............................... 4,691 12,471 12,593 14,428 34,196
</TABLE>
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(1) Amount in 1996 includes additional amortization of $832,000 due to a change
in the estimated useful life of capitalized software development costs.
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(2) Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. The cumulative
effect of the adoption of this statement resulted in the recognition of a
$5,750,000 gain during the year ended March 31, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion 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. Words
such as "anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements, which 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'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. In addition, the business and operations of the Company are subject to
substantial risks which increase the uncertainty inherent in such
forward-looking statements, including those discussed in Item 1, "Business --
Certain Considerations". 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 year ended March 31, 1997 with the year ended March 31,
1996 and the year ended March 31, 1996 is compared against the year ended March
31, 1995. This discussion should be read in conjunction with the financial
statements and associated notes to the financial statements.
FISCAL YEARS ENDED MARCH 31, 1997 AND 1996
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 28.9% to $58.9 million for the year ended March 31, 1997
from $45.7 million for the year ended March 31, 1996. System revenues
experienced an increase of 37.2%, or $13.3 million, to $49.1 million for fiscal
year 1997, up from $35.8 million for the previous fiscal year. The system
revenue increase is primarily attributable to an increasing number of AFIS 2000
system installations worldwide. Additionally, the Company experienced a greater
number of larger dollar contracts in the current year. The average value per
contract shipped approximated $1.0 million in fiscal year 1997, up from
approximately $770K for the previous fiscal year.
Maintenance revenues equaled $9.7 million for the year ended March 31, 1997,
consistent with prior year revenues of $9.9 million. The consistency in the
maintenance revenue stream, despite an increasing
11
<PAGE>
customer base, is reflective of a number of customer AFIS 2000 system upgrades,
which, although they yield increased system revenue, reduce maintenance revenues
during the customer's warranty period.
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 $28.3 million for the year ended March 31,
1997, up from $19.6 million for the same period of the previous year. Overall
gross margin for fiscal year 1997 increased to 48.1% from 42.9% for fiscal year
1996. The gross profit for system revenues increased to $23.8 million for the
year ended March 31, 1997 in comparison to $14.6 million for the year ended
March 31, 1996. Additionally, system gross margin equaled 48.5% for the current
fiscal year, a significant increase from 40.9% for the previous fiscal year. The
gross margin associated with maintenance revenues declined to 46.1% for the year
ended March 31, 1997 from 49.9% for the year ended March 31, 1996. Overall
maintenance gross profit also declined and approximated $4.5 million at March
31, 1997, versus $4.9 million for the prior year.
The overall increase in system gross margin to 48.5% is partially related to
$2.2 million of software amortization, present in the prior year but absent in
the current year because all capitalized software was fully amortized in the
previous fiscal year. Absent the software amortization in the prior year, the
Company's system margin would have approximated 45.9%. Additionally, favorable
order mix and favorable raw material prices resulted in an increase in the
overall system margin. 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. 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 consultants and the cost of materials used in the
development of hardware and software products.
RD&E expenses increased 18.6% to $10.2 million for the year ended March 31,
1997, up from $8.6 million for the year ended March 31, 1996. 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. Depreciation expense also increased due to a higher amount
of equipment used principally for development efforts. RD&E expense, as a
percentage of revenues, decreased to 17.3% for the current year, down from 18.7%
for the same period of the previous year, primarily due to the increased level
of total revenues. The Company expects that RD&E expenses will continue to
decline as a percentage of revenues based on anticipated growth in total
revenues.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
(SG&A) expenses consist principally of compensation paid to sales, marketing,
and administrative personnel, professional service fees, travel and related
expenses, and other marketing expenses.
For the year ended March 31, 1997, SG&A expenses increased to $11.5 million
from $9.8 million for the year ended March 31, 1996. This reflects an overall
SG&A expense increase of $1.7 million or 17.3%. 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 costs, and
increased professional service fees. SG&A expenses, as a percentage of revenues,
decreased to 19.6% for the current year, down from 21.4% for the prior year, due
primarily to the increased level of total revenues. The Company expects that
SG&A expenses, as a percentage of revenues, will remain consistent or may
increase slightly due to a new sales commission plan which provides salesmen
with incentives based on the achievement of certain order and sales targets.
Additionally, the Company has implemented certain marketing initiatives which
are expected to increase marketing expense.
12
<PAGE>
OTHER INCOME, NET. Other income in the current year is primarily associated
with interest income of $364,000 and other miscellaneous income items, offset,
in part, by interest expense of $246,000. For the previous year, other income is
associated with the amortization of the deferred credit which became fully
amortized in March, 1996. Approximately $1.2 million of this credit was
amortized to income in 1996.
PROVISION FOR INCOME TAXES. Income tax expense for the year ended March 31,
1997 equaled $2.4 million in comparison to tax expense of $366,000 in the prior
year. This represents an overall increase in tax expense of approximately $2.0
million. The Company's tax provision is based on the federal statutory rate of
35% and reflects the impact of state and foreign taxes and the changes in the
deferred tax valuation allowance, primarily associated with net operating loss
carryforwards.
FISCAL YEARS ENDED MARCH 31, 1996 AND 1995
TOTAL REVENUES. Total revenues increased 70.6% to $45.7 million for the
year ended March 31, 1996 from $26.8 million for the year ended March 31, 1995.
The increase in 1996 revenues is attributable to increased market acceptance of
the Company's AFIS 2000 series of products, the broadening of the Company's
product line, as well as increased maintenance revenue from existing customers.
GROSS PROFIT. Gross profit increased 70.4% to $19.6 million in fiscal year
1996 from $11.5 million in fiscal year 1995. Gross profit as a percentage of
total revenues was 42.9% for the year ended March 31, 1996, versus 43% for the
year ended March 31, 1995. Gross profit as a percentage of total revenue in
fiscal year 1996 was adversely impacted by a large sale to an existing customer.
This customer's order was initiated through a competitive bidding process. In
fiscal year's 1996 and 1995, gross margins were also impacted by higher
amortization of capitalized software development costs. Costs associated with
software amortization were $2.3 million and $1.3 million for the years ended
March 31, 1996 and 1995, respectively.
RESEARCH, DEVELOPMENT AND ENGINEERING. In 1996, the Company's management
reevaluated the useful life of existing capitalized software, as well as the
point at which technological feasibility of current projects is established.
Based upon this evaluation, the Company determined that the remaining useful
life of existing capitalized software development was shorter than originally
estimated based on the fact that technological feasibility is established
concurrent with the completion of a working model, and as of March 31, 1996 all
previously capitalized software was fully expensed. As such, costs which were
previously capitalized and amortized over a three year period are now expensed
as engineering costs.
Research, development and engineering expenditures increased 100.0% to $8.6
million in 1996 from $4.3 million in 1995. Research, development and engineering
expenditures were 18.7% and 16.0% (18.7% and 26.0% including capitalized
software development costs), respectively, of the Company's total revenues in
1996 and 1995. The increase in research, development, and engineering for 1996
was primarily due to the addition of personnel for the development of new
products and the continued enhancement of existing products.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenditures increased 34.2% to $9.8 million for the year ended March 31, 1996,
up from $7.3 million for the year ended March 31, 1995. Selling, general and
administrative expenditures were 21.4% of the Company's revenues for fiscal year
1996, down from 27.3% of revenues for the same fiscal period in 1995. The
increase in expense from 1995 to 1996 primarily reflects the addition of sales,
marketing, and support capabilities needed to support a higher level of
revenues.
OTHER INCOME, NET. In 1991, the Company was acquired from De La Rue, Inc.,
the successor-in-interest to Thomas De La Rue and Company Limited, which
acquisition was accounted for as a purchase. The excess of the fair market value
of the net assets acquired over the purchase price was recorded as a deferred
credit (negative goodwill) and was amortized on a straight-line basis over five
years. Other income, net results primarily from amortization of this deferred
credit. Approximately $1.2 million was amortized to income in both fiscal year
1996 and fiscal year 1995. As of March 31, 1996, this credit was fully utilized.
PROVISION FOR INCOME TAXES. Income tax expense was $366,000 and $218,000,
respectively, for fiscal years 1996 and 1995. These tax provisions are based on
the federal rate of 34% and reflects the impact of state and foreign taxes and
the changes in the deferred tax valuation allowance, primarily associated with
net operating loss carryforwards.
13
<PAGE>
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 $5.5 million for the year ended March 31, 1997, primarily as a
result of the increase in accounts receivable, offset by other working capital
changes. The increase in the Company's accounts receivable is primarily the
result of two large contracts for which the customers negotiated extended
payment terms based on acceptance testing. The Company's operating activities
generated net cash of approximately $2.2 million for the year ended March 31,
1996 primarily as a result of depreciation expense, increases in accounts
payable and other liabilities which were somewhat offset by increases in
accounts receivable and inventory.
The Company's investing activities used net cash of approximately $4.6
million for fiscal year 1997, due to capital expenditures of $1.2 million,
approximately $0.9 million cash received from the collection of a note
receivable and $4.2 million of short-term investment purchases. Investing
activities generated net cash of $940,000 for the year ended March 31, 1995,
primarily from the sale of the Company's headquarters for proceeds of $3.3
million, partially offset by the purchase of capital equipment of $2.2 million.
Financing activities provided net cash of approximately $10.7 million for
the year ended March 31, 1997 while financing activities for the same period of
the previous year used net cash of $895,000. For the current period, net debt
repayments equaled $4.7 million. Net proceeds of approximately $14.7 million
were realized from the Company's initial public offering and proceeds of $.7
million were realized from employees' participation in the Company's employee
stock purchase plan. For the period ended March 31, 1996, the Company borrowed
$3.2 million and paid principal payments on its long-term debt of $4.1 million.
As of March 31, 1997, the Company had available borrowings of $13.1 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Registrant required
by this Item 8 are set forth at the pages indicated at Item 14 (a) (1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 with respect to Directors and Executive
Officers is incorporated by reference to the information contained in the
sections captioned "Directors" and "Other Executive Officers" in the
Registrant's definitive Proxy Statement for its 1997 Annual Meeting of
stockholders to be held on August 15, 1997 to be filed with the Securities and
Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
information contained in the section entitled "Compensation of Executive
Officers" in the Registrant's definitive Proxy Statement for its 1997 Annual
Meeting of stockholders to be held on August 15, 1997 to be filed with the
Securities and Exchange Commission.
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
information contained in the Section entitled "Security Ownership of Management
and Directors" in the Registrant's definitive Proxy Statement for its 1997
Annual Meeting of stockholders to be held on August 15, 1997 to be filed with
the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
information contained in the sections entitled "Compensation of Executive
Officers" and "Compensation Committee Interlocks and Insider Participation" in
the Registrant's definitive Proxy Statement for its 1997 Annual Meeting of
stockholders to be held on August 15, 1997 to be filed with the Securities and
Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See Index to Financial Statements and Schedule on page F-1.
2. Financial Statement Schedule:
See Index to Financial Statements and Schedule on page F-1.
3. Exhibits:
The following exhibits are filed (or incorporated herein) as part of
this Form 10K:
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of March 28, 1996, between the Company and
Printrak International Incorporated, a California corporation (Incorporated by
reference to Exhibit 2.1 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on May 3, 1996, File No. 333-4610)
3.2 Certificate of Incorporation of the Company (Incorporated by reference to Exhibit
3.1 of the Company's Registration Statement on Form S-1 as filed with the Securities
and Exchange Commission on May 3, 1996, File No. 333-4610)
3.3 Amended and Restated Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.2 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on June 28, 1996, File No.
333-4610)
3.4 Bylaws of the Company, as currently in effect
4.1 Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on June 28, 1996, File No. 333-4610)
10.1 * Printrak International Inc. Executive Stock Option Plan (the "Executive Plan"), as
amended (Incorporated by reference to Exhibit 10.1 of the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on May 3,
1996, File No. 333-4610)
10.2 * Form of Nonqualified Stock Option Agreement pertaining to the Executive Plan
(Incorporated by reference to Exhibit 10.2 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
</TABLE>
15
<PAGE>
<TABLE>
<C> <S>
10.3 * Printrak International Inc. 1994 Stock Option Plan (the "1994 Plan") (Incorporated
by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on May 3, 1996, File No. 333-4610)
10.4 * Form of Nonqualified Stock Option Agreement pertaining to the 1994 Plan
(Incorporated by reference to Exhibit 10.4 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.5 * Printrak International Inc. 1996 Stock Incentive Plan (the "1996
Plan")(Incorporated by reference to Exhibit 10.5 of the Company's Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on May 3,
1996, File No. 333-4610)
10.6 * Form of Stock Option Agreement pertaining to the 1996 Plan (Incorporated by
reference to Exhibit 10.6 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on May 3, 1996, File No. 333-4610)
10.7 * Form of Restricted Stock Purchase Agreement pertaining to the 1996 Plan
(Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.8 * Printrak International Inc. Employee Stock Purchase Plan--1996 (Incorporated by
reference to Exhibit 10.8 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on May 3, 1996, File No. 333-4610)
10.9 * Printrak International Inc. Voluntary Deferred Compensation Plan (Incorporated by
reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on May 3, 1996, File No. 333-4610)
10.10 * Employee Agreement dated May 1, 1996 between the Company and Richard M. Giles
(Incorporated by reference to Exhibit 10.10 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.11 Promissory Note dated March 1, 1996 by Richard M. Giles, in favor of the Company
(Incorporated by reference to Exhibit 10.11 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.12 Stock Pledge Agreement dated March 1, 1996 between the Company and Richard M. Giles
(Incorporated by reference to Exhibit 10.12 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.13 Promissory Note dated March 1, 1996 by John G. Hardy in favor of the Company
(Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.14 Stock Pledge Agreement dated March 1, 1996 between the Company and John G. Hardy
(Incorporated by reference to Exhibit 10.14 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.15 * Form of Severance Agreement between the Company and its executive officers
(Incorporated by reference to Exhibit 10.15 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.16 Form of Indemnification Agreement for Officers and Directors of the Company
(Incorporated by reference to Exhibit 10.16 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
</TABLE>
16
<PAGE>
<TABLE>
<C> <S>
10.17 Purchase and Sale Agreement dated May 12, 1995 between the Company and RICOL, LLC
(Incorporated by reference to Exhibit 10.17 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.18 Promissory Note of RICOL, LLC, dated May 12, 1995 in favor of the Company
(Incorporated by reference to Exhibit 10.18 of the Company's Registration Statement
on Form S-1 as filed with the Securities and Exchange Commission on May 3, 1996,
File No. 333-4610)
10.19 Deed of Trust dated May 12, 1995 by RICOL, LLC in favor of the Company, as
beneficiary (Incorporated by reference to Exhibit 10.19 of the Company's
Registration Statement on Form S-1 as filed with the Securities and Exchange
Commission on May 3, 1996, File No. 333-4610)
10.20 Commercial Lease dated May 13, 1995 between the Company and RICOL, LLC (Incorporated
by reference to Exhibit 10.20 of the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission on May 3, 1996, File No. 333-4610)
10.21 Loan Agreement between the Company and Union Bank dated August 12, 1996
(Incorporated by reference to Exhibit 10.21 of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 as filed with the Securities and
Exchange Commission on November 13, 1996)
10.22 Promissory Note between the Company and Union Bank of California dated January 30,
1997 (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996, as filed with the Securities and
Exchange Commission on February 13, 1997)
21 SIGNIFICANT SUBSIDIARIES OF THE COMPANY
23.1 Consent of Independent Auditors, Deloitte & Touche LLP, dated June 26, 1997
27 FINANCIAL DATA SCHEDULE
99.1 Consent of G2 Research, Inc. (Incorporated by reference to Exhibit 99.1 of Amendment
No. 1 to the Company's Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission on June 4, 1996, File No. 333-4610)
</TABLE>
- ------------------------
* These exhibits are identified as management contracts or compensatory plans
or arrangements of the Registrant pursuant to Item 14(a) of Form 10-K.
(b) Reports on Form 8-K
The Registrant did not file a Form 8-K during the fourth quarter of
fiscal year 1997.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of Anaheim,
State of California, on June 27, 1997.
PRINTRAK INTERNATIONAL INC.
By: /S/ RICHARD M. GILES
-----------------------------------------
Richard M. Giles
Chairman of the Board, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Act of 1934 this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/S/ RICHARD M. GILES Chief Executive
- ---------------------------- Officer and President June 27, 1997
RICHARD M. GILES (Principal Executive
Officer)
Chief Financial Officer
/S/ KEVIN P. MCDONNELL and Director (Principal
- ---------------------------- Financial and Accounting June 27, 1997
Kevin P. McDonnell Officer)
/S/ JOHN G. HARDY
- ---------------------------- Senior Vice President of June 27, 1997
JOHN G. HARDY Operations and Director
/S/ DAVID L. MCNEFF Vice President of
- ---------------------------- Worldwide Sales and June 27, 1997
David L. McNeff Director
/S/ KENNETH W. SIMONDS
- ---------------------------- Director June 27, 1997
Kenneth W. Simonds
/S/ CHARLES L. SMITH
- ---------------------------- Director June 27, 1997
Charles L. Smith
/S/ BARRY B. WHITE
- ---------------------------- Director June 27, 1997
Barry B. White
/S/ ALBERT WONG
- ---------------------------- Director June 27, 1997
Albert Wong
18
<PAGE>
PRINTRAK INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Stockholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Printrak International Inc.:
We have audited the accompanying consolidated balance sheets of Printrak
International Inc. and subsidiary (the Company) as of March 31, 1996 and 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended March 31, 1997. Our
audits also included the financial statement schedule listed in the index at
14(a)(2). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Printrak International Inc. and
subsidiary as of March 31, 1996 and 1997 and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 1997,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
May 12, 1997
Costa Mesa, California
F-2
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 3,154,000 $ 3,734,000
Short-term investments............................ 364,000 4,599,000
Accounts receivable, net, including unbilled
amounts of $5,315,000 (1996) and $8,337,255
(1997) (Notes 3 and 4).......................... 11,086,000 22,943,000
Inventories, net (Note 5)......................... 8,852,000 4,890,000
Prepaid expenses and other current assets......... 363,000 463,000
Deferred income taxes (Note 9).................... 902,000
------------ ------------
Total current assets.......................... 23,819,000 37,531,000
NOTES RECEIVABLE FROM RELATED PARTIES (Note 13)... 1,390,000 543,000
PROPERTY AND EQUIPMENT, net (Notes 6 and 8)....... 2,889,000 5,096,000
DEFERRED INCOME TAXES (Note 9).................... 4,847,000 2,867,000
OTHER LONG-TERM ASSETS............................ 1,578,000
------------ ------------
TOTAL ASSETS...................................... $ 32,945,000 $ 47,615,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 4,761,000 $ 3,990,000
Accrued wage and employee benefits................ 1,575,000 1,807,000
Other accrued liabilities (Note 7)................ 1,541,000 2,442,000
Current portion of long-term debt (Notes 8 and
10)............................................. 888,000 184,000
Deferred revenue.................................. 3,904,000 2,742,000
Income taxes payable (Note 9)..................... 234,000 623,000
------------ ------------
Total current liabilities..................... 12,903,000 11,788,000
LONG-TERM DEBT, less current portion (Notes 8 and
10)............................................. 5,614,000 1,472,000
OTHER LONG-TERM LIABILITIES....................... 159,000
------------ ------------
Total liabilities............................. 18,517,000 13,419,000
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 11):
Preferred stock, $0.0001 par value; 5,000,000
shares authorized; no shares outstanding
Common stock, $0.0001 par value; 20,000,000 shares
authorized; 7,323,200 (1996) and 9,026,000
(1997) shares issued and outstanding............ 1,000 1,000
Additional paid-in capital........................ 308,000 15,713,000
Retained earnings................................. 14,352,000 18,780,000
Note receivable from stockholder (Note 13)........ (300,000) (300,000)
Unrealized gain on short-term investments......... 41,000 46,000
Cumulative foreign exchange translation
adjustment...................................... 26,000 (44,000)
------------ ------------
Total stockholders' equity.................... 14,428,000 34,196,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 32,945,000 $ 47,615,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES (Note 4):
System............................................ $ 17,553,000 $ 35,806,000 $ 49,125,000
Maintenance....................................... 9,246,000 9,911,000 9,740,000
------------ ------------ ------------
Total revenues................................ 26,799,000 45,717,000 58,865,000
COST OF REVENUES:
System............................................ 10,465,000 21,158,000 25,313,000
Maintenance....................................... 4,810,000 4,963,000 5,252,000
------------ ------------ ------------
Total cost of revenues........................ 15,275,000 26,121,000 30,565,000
------------ ------------ ------------
GROSS PROFIT...................................... 11,524,000 19,596,000 28,300,000
OPERATING EXPENSES:
Research, development and engineering............. 4,301,000 8,558,000 10,186,000
Selling, general and administrative............... 7,320,000 9,776,000 11,541,000
------------ ------------ ------------
Total operating expenses...................... 11,621,000 18,334,000 21,727,000
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS..................... (97,000) 1,262,000 6,573,000
OTHER INCOME (EXPENSE):
Amortization of deferred credit (Note 2).......... 1,207,000 1,207,000
Foreign currency gain (loss)...................... (12,000) 67,000 (144,000)
Interest (expense) income, net.................... (454,000) (334,000) 141,000
Other income...................................... 600,000 275,000
------------ ------------ ------------
Total other income, net....................... 1,341,000 940,000 272,000
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES.......... 1,244,000 2,202,000 6,845,000
PROVISION FOR INCOME TAXES (Note 9)............... 218,000 366,000 2,417,000
------------ ------------ ------------
NET INCOME........................................ $ 1,026,000 $ 1,836,000 $ 4,428,000
------------ ------------ ------------
------------ ------------ ------------
NET INCOME PER SHARE.............................. $ 0.14 $ 0.24 $ 0.46
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING............... $ 7,355,000 $ 7,685,000 $ 9,563,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK NOTE UNREALIZED FOREIGN
---------------------- ADDITIONAL RECEIVABLE GAIN ON EXCHANGE TOTAL
NUMBER OF PAID-IN RETAINED FROM SHORT-TERM TRANSLATION STOCKHOLDERS'
SHARES PAR VALUE CAPITAL EARNINGS STOCKHOLDER INVESTMENTS ADJUSTMENT EQUITY
--------- ----------- ---------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1994...... 7,200,000 $ 1,000 $ -- $12,490,000 $ -- $ -- $ (20,000) $12,471,000
Net income.................. 1,026,000 1,026,000
Dividend.................... (1,000,000) (1,000,000)
Foreign currency translation
adjustment................ 96,000 96,000
--------- ----------- ---------- ---------- ----------- ----------- ----------- ------------
BALANCE, March 31, 1995..... 7,200,000 1,000 12,516,000 76,000 12,593,000
Exercise of common stock
options and receipt of
note receivable from
stockholder............... 123,200 308,000 (300,000) 8,000
Net income.................. 1,836,000 1,836,000
Unrealized gain on short
term investments.......... 41,000 41,000
Foreign currency translation
adjustment................ (50,000) (50,000)
--------- ----------- ---------- ---------- ----------- ----------- ----------- ------------
BALANCE, March 31, 1996..... 7,323,200 1,000 308,000 14,352,000 (300,000) 41,000 26,000 14,428,000
Issuance of common stock.... 1,702,726 15,405,000 15,405,000
Net income.................. 4,428,000 4,428,000
Unrealized gain on short
term investments.......... 5,000 5,000
Foreign currency translation
adjustment................ (70,000) (70,000)
--------- ----------- ---------- ---------- ----------- ----------- ----------- ------------
BALANCE, March 31, 1997..... 9,025,926 $ 1,000 $15,713,000 $18,780,000 $(300,000) $ 46,000 $ (44,000) $34,196,000
--------- ----------- ---------- ---------- ----------- ----------- ----------- ------------
--------- ----------- ---------- ---------- ----------- ----------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,026,000 $ 1,836,000 $ 4,428,000
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 3,087,000 3,884,000 2,418,000
Amortization of deferred credit......................... (1,207,000) (1,207,000)
Deferred income tax provision........................... 27,000 154,000 1,078,000
Changes in operating assets and liabilities:
Accounts receivable, net.............................. 262,000 (4,938,000) (11,857,000)
Inventories, net...................................... (3,343,000) (2,711,000) 571,000
Prepaid expenses and other assets..................... 23,000 50,000 (1,678,000)
Accounts payable...................................... 852,000 2,544,000 (772,000)
Accrued liabilities................................... (895,000) 926,000 1,134,000
Deferred revenue...................................... 1,462,000 1,547,000 (1,162,000)
Income taxes payable.................................. (72,000) 125,000 389,000
------------ ------------ ------------
Net cash provided by (used in) operating
activities........................................ 1,222,000 2,210,000 (5,451,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,102,000) (2,230,000) (1,229,000)
Proceeds from sale of land and building, net.............. 3,330,000
Capitalized software development costs.................... (2,668,000)
Purchases of short-term investments....................... (1,000) (4,235,000)
Notes receivable from related parties..................... (160,000) 847,000
------------ ------------ ------------
Net cash (used in) provided by investing
activities........................................ (3,771,000) 940,000 (4,617,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 3,555,000 3,200,000 6,116,000
Principal payments on long-term debt...................... (630,000) (4,103,000) (10,803,000)
Dividends paid............................................ (1,000,000)
Proceeds from exercise of stock options................... 8,000 690,000
Net proceeds received from initial public offering........ 14,715,000
------------ ------------ ------------
Net cash provided by (used in) financing
activities........................................ 1,925,000 (895,000) 10,718,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH BALANCES.......... 96,000 (50,000) (70,000)
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...... (528,000) 2,205,000 580,000
CASH AND CASH EQUIVALENTS,
beginning of year....................................... 1,477,000 949,000 3,154,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year.................... $ 949,000 $ 3,154,000 $ 3,734,000
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--Cash
paid during the year for:
Interest................................................ $ 477,000 $ 467,000 $ 246,000
------------ ------------ ------------
------------ ------------ ------------
Income taxes............................................ $ 244,000 $ 70,000 $ 802,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NONCASH TRANSACTIONS:
For the years ended March 31, 1995 and 1997, the Company entered into
capital lease agreements for equipment amounting to $405,000 and $391,000,
respectively.
During the year ended March 31, 1997, the Company capitalized $3,391,000 of
equipment and materials, previously classified as inventory, into fixed assets.
During the year ended March 31, 1996, the Company received a note for
$1,230,000 from a related party in conjunction with the sale of land and a
building, and received a note of $300,000 from an officer for the exercise of
stock options (Note 13).
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
1. DESCRIPTION OF THE BUSINESS
Printrak International Inc. (the Company) designs, develops and manufactures
automated fingerprint information systems (AFIS) primarily for use in law
enforcement applications. The Company seeks to provide its customers with
comprehensive solutions for capture and input of images, image processing,
search processing and database management.
The Company markets its products to national, regional and local law
enforcement agencies around the world. The Company's prospective customers are
subject to public agency contract requirements which vary from jurisdiction to
jurisdiction. Public agency contracts typically contain provisions that permit
cancellation in the event that funds are unavailable to the public agency.
In March 1996, the Company was reincorporated in the State of Delaware and
established a par value of $0.0001 on its common and preferred stock. Concurrent
with this reincorporation, the Company enacted a 1-for-2.5 reverse stock split.
The accompanying consolidated financial statements and notes thereto have been
restated to reflect the reincorporation and stock split for all periods
presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Printrak International Inc. and its wholly-owned subsidiary,
Printrak Limited (together, the Company). All material intercompany transactions
and accounts have been eliminated.
REVENUE RECOGNITION--Revenue is recognized for system sales with
insignificant customer obligations when the system is shipped. The Company
records an accrual for any remaining obligations which typically consist of
installation and warranty costs. The Company's policy is to defer recognition
of revenue if significant uncertainties exist with regard to customer
acceptance until the uncertainty becomes insignificant. Certain of the
Company's system sales are considered long-term contracts due to a
significant amount of custom modification to the basic system or to extended
delivery terms. Under these types of contracts, the Company recognizes
revenue under the percentage of completion method principally using the ratio
of labor costs incurred to total estimated labor costs at completion or based
on units of delivery. During the present year, no contracts of this type
existed, and as such, no revenue was recognized on a percentage of completion
basis. At the time a loss on a contract becomes known, the entire amount of
the estimated loss on the contract is accrued. Revenue for file conversions
is recognized as such services are performed. Revenue for maintenance service
contracts is recognized on a monthly basis ratably over the period of the
contract. Cash payments for maintenance received in advance of revenue
recognition are accounted for as deferred revenue.
FOREIGN CURRENCY--The financial position and results of operations of the
Company's foreign subsidiary are measured using the local currency as the
functional currency. Assets and liabilities of this subsidiary are translated at
the exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from differences in exchange rates from period
to period are included in the accumulated foreign currency translation
adjustments account in shareholders' equity. Realized gains or losses from
foreign currency transactions are included in operations as incurred.
CASH EQUIVALENTS--Cash equivalents are deemed to be highly-liquid
investments with an original maturity of three months or less.
SHORT-TERM INVESTMENTS--The Company accounts for its investments in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
F-7
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES. Marketable equity and debt securities available for current
operations are classified in the balance sheet as current assets. Unrealized
holding gains and losses, if any, are included as a component of stockholders'
equity until realized. At March 31, 1996 and 1997, short-term investments
consist of common stock based mutual funds which have been categorized as
available for sale and, as a result, are stated at fair value.
INVENTORIES--Inventories are stated at the lower of cost or market, with
cost being determined on a first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to five years. Leasehold
improvements are amortized over the shorter of the lease term or the useful
lives of the related assets. Maintenance, repairs and minor renewals are charged
to expense, as incurred. Additions and improvements are capitalized.
DEFERRED CREDIT--The deferred credit (negative goodwill) relates to the
excess of the fair market value of current assets acquired and liabilities
assumed over the purchase price of the Company in 1991 and has been amortized on
a straight-line basis over five years. This credit was fully amortized in March
1996.
INCOME TAXES--Effective April 1, 1993, the Company adopted SFAS No. 109,
ACCOUNTING FOR LNCOME TAXES. SFAS No. 109 provides that deferred income taxes
are recognized for the tax consequences in future years for differences between
the tax basis of assets and liabilities (temporary differences) and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the temporary differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
SOFTWARE DEVELOPMENT COSTS--Development costs incurred in the research,
development and engineering of new software products and enhancements to
existing software products are expensed as incurred until technological
feasibility has been established. For the year ended March 31, 1996, software
development was substantially completed concurrent with the establishment of
technological feasibility due to the nature of the development effort and,
accordingly, no costs were capitalized. The Company considers technological
feasibility to be established when all planning, designing, coding and testing
has been completed according to design specifications. After technological
feasibility is established, any additional costs are capitalized in accordance
with SFAS No. 86, ACCOUNTING FOR COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED
OR OTHERWISE MARKETED.
Prior to fiscal 1996, the Company capitalized software development costs
related to the development of its AFIS 2000 system. Such costs were being
amortized over a three-year period. In fiscal 1996, the Company changed the
estimated remaining life of such costs due to the increased exposure to
continued modifications of the software to meet changing demands of its
customers as well as more rapid technological changes. This change resulted in
the remaining balance being fully amortized as of March 31, 1996 and additional
costs of $832,000 being expensed during fiscal 1996.
RESEARCH, DEVELOPMENT AND ENGINEERING--Research, development and engineering
costs are expensed as incurred. Research, development and engineering includes
costs for the development of new products and prototype units. The Company also
incurs engineering costs associated with modifications to its system, testing of
such systems and the integration of equipment to comply with customer
requirements.
F-8
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Management believes that system modifications can generally be utilized by other
customers and accordingly, has combined such costs with research, development
and engineering.
ACCOUNTING FOR STOCK-BASED COMPENSATION--The Company accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES (Note 11).
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.
NET INCOME PER SHARE--Net income per share is computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding. 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 12 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.
NEW ACCOUNTING PRONOUNCEMENT--In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128, EARNINGS PER SHARE (EPS), which is
effective for financial statements for interim and annual periods ending after
December 15, 1997. SFAS No. 128 requires the Company to report basic EPS, as
defined therein, which excludes all common share equivalents from the earnings
per share computation, and diluted EPS, as defined therein, which is calculated
similar to the Company's primary earnings per share computation. The Company has
determined that the adoption of this statement would not have had a material
impact on the earnings per share calculations for the periods presented in the
accompanying consolidated financial statements.
RECLASSIFICATIONS--Certain amounts in the accompanying consolidated
financial statements have been reclassified to conform with the March 31, 1997
presentation.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Billed receivables............................................. $ 6,005,000 $ 14,806,000
Unbilled receivables........................................... 5,315,000 8,337,000
------------- -------------
11,320,000 23,143,000
Less allowance for doubtful accounts........................... (234,000) (200,000)
------------- -------------
$ 11,086,000 $ 22,943,000
------------- -------------
------------- -------------
</TABLE>
Unbilled receivables consist of system and maintenance revenues which have
been earned but not invoiced because of contractual terms of the underlying
agreements.
F-9
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
4. CONCENTRATIONS OF REVENUE AND CREDIT RISK
MAJOR CUSTOMERS--The Company's revenues are generated from credit sales to
customers primarily in the law enforcement market. The Company performs ongoing
credit evaluations of its customers and maintains reserves for potential credit
losses and generally does not require collateral. The Company's ten largest
customers represented 59% of total revenues in fiscal 1997; and, as a result,
the Company has a large proportion of its receivables outstanding with these
customers. Accounts receivable from the Company's ten largest customers were
$15,661,000 as of March 31, 1997.
Major customers have varied from year to year. Sales to individual customers
amounting to more than 10% of total revenues were $2,700,000 in fiscal 1995,
$8,300,000 in fiscal 1996, and $9,040,000 and $6,863,000 in fiscal 1997. Given
the significant amount of revenues derived from such customers, the loss of any
such customer or the uncollectibility of related receivables could have a
material adverse effect on the Company's financial condition and results of
operations.
INTERNATIONAL SALES--A substantial portion of the Company's total revenues
are derived from international sales. International sales as a percent of the
Company's total revenues are summarized as follows for the year ended March 31:
GEOGRAPHIC AREA
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Europe.................................................................. 35.0% 26.9% 11.5%
Canada.................................................................. 13.0 8.7 20.9
Other................................................................... 12.4 1.6 1.5
--- --- ---
60.4% 37.2% 33.9%
--- --- ---
--- --- ---
</TABLE>
International sales are subject to inherent risks, including unexpected
changes in regulatory requirements, tariffs and other barriers, fluctuating
exchange rates, difficulties in staffing and managing foreign sales and support
operations, greater working capital requirements, political and economic
instability, and potentially limited intellectual property protection.
5. INVENTORIES
Inventories consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Raw materials..................................................... $ 2,707,000 $ 3,520,000
Work in process................................................... 4,319,000 1,554,000
Finished goods.................................................... 257,000 36,000
Replacement parts, net of accumulated amortization of $635,000
(1996).......................................................... 1,926,000
------------ ------------
9,209,000 5,110,000
Less allowance for excess and obsolete inventories................ (357,000) (220,000)
------------ ------------
$ 8,852,000 $ 4,890,000
------------ ------------
------------ ------------
</TABLE>
The replacement parts primarily related to older generation systems which
were still under maintenance contracts. Such parts were fully amortized and
disposed of in fiscal 1997.
F-10
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Building and improvements (Note 13)............................. $ 83,000 $ 37,000
Computer equipment.............................................. 5,777,000 7,197,000
Purchased software.............................................. 902,000 735,000
Other equipment and furniture................................... 570,000 454,000
------------- -------------
7,332,000 8,423,000
Less accumulated depreciation and amortization.................. (4,443,000) (3,327,000)
------------- -------------
$ 2,889,000 $ 5,096,000
------------- -------------
------------- -------------
</TABLE>
Computer equipment includes assets under capital lease of $468,000 and
$894,000 as of March 31, 1996 and 1997, respectively. Accumulated amortization
on such leased equipment amounted to $325,000 and $459,000, respectively (Note
10).
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Warranty.......................................................... $ 651,000 $ 1,238,000
Sales taxes and V.A.T............................................. 200,000 125,000
Professional fees................................................. 101,000 208,000
Insurance......................................................... 266,000
Profit sharing.................................................... 227,000
Other............................................................. 362,000 605,000
------------ ------------
$ 1,541,000 $ 2,442,000
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
8. LONG-TERM DEBT
Long-term debt consists of the following at March 31:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Revolving line of credit with bank, collateralized by
substantially all assets of the Company, interest payable
monthly at the bank's reference rate or the bank's LIBOR rate,
plus 1.75%, principal due July 31, 1998......................... $ 4,200,000 $ 1,000,000
Term loan with bank, collateralized by substantially all assets of
the Company, interest payable monthly at the bank's reference
rate plus 0.75% or the bank's LIBOR rate plus 2.75%, principal
due in monthly installments of $55,556, balance due September 1,
1998............................................................ 1,611,000
Term loan with bank, collateralized by equipment, interest payable
monthly at the bank's reference rate plus 1.0% or the bank's
LIBOR rate plus 3.0%, principal due in monthly installments of
$11,200 until paid.............................................. 385,000
Obligations under capital leases (Note 10)........................ 306,000 656,000
------------ ------------
6,502,000 1,656,000
Less current portion of long-term debt............................ (888,000) (184,000)
------------ ------------
$ 5,614,000 $ 1,472,000
------------ ------------
------------ ------------
</TABLE>
The bank's reference rate and LIBOR rate at March 31, 1997 were 8.5% and
5.4375%, respectively.
Annual debt principal repayments are as follows:
<TABLE>
<S> <C>
Year ending March 31:
1998.......................................................... $ 184,000
1999.......................................................... 1,195,000
2000.......................................................... 116,000
2001.......................................................... 91,000
2002.......................................................... 70,000
---------
$1,656,000
---------
---------
</TABLE>
The revolving line of credit and term loan agreements with a bank contain
certain restrictive covenants which restrict the Company's ability to pay
dividends and require the Company to maintain minimum tangible net worth and
certain financial ratios such as current ratio, cash flow to debt service ratio
and total liabilities to tangible net worth ratio. The Company was in compliance
with such financial covenants, as amended, at March 31, 1997.
F-12
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
9. INCOME TAXES
The Company's provision for income taxes consists of the following for the
year ended March 31:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
Current:
Federal.............................................. $ 34,000 $ 90,000 $ 499,000
State................................................ 38,000 22,000 560,000
Foreign.............................................. 119,000 100,000 280,000
---------- ---------- ------------
Total current...................................... 191,000 212,000 1,339,000
---------- ---------- ------------
Deferred:
Federal.............................................. 22,000 145,000 795,000
State................................................ 5,000 9,000 283,000
---------- ---------- ------------
Total deferred..................................... 27,000 154,000 1,078,000
---------- ---------- ------------
Total provision........................................ $ 218,000 $ 366,000 $ 2,417,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The reconciliation between the Company's effective tax rate and the
statutory federal income tax rate follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate..................................... 35.0% 35.0% 35.0%
State taxes net of federal benefit.................................... 2.3 0.9 7.0
Amortization of deferred credit....................................... (33.0) (18.6)
Foreign operations.................................................... (1.8) 0.1 1.0
Increase (decrease) in valuation allowance............................ 14.6 (11.7)
Other................................................................. 0.4 (0.8) 4.0
--------- --------- ---------
17.5% 16.6% 35.3%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes in the accompanying consolidated balance sheets are
comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net deferred tax asset....................... $ 21,331,000 $ 20,480,000 $ 6,504,000
Valuation allowance.......................... (16,330,000) (15,633,000) (2,735,000)
-------------- -------------- --------------
Net deferred tax asset....................... $ 5,001,000 $ 4,847,000 $ 3,769,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The Company has not provided for U.S. federal income and foreign withholding
taxes on the earnings of its foreign subsidiary because it is currently
anticipated that these earnings will be permanently reinvested. If these
earnings are distributed, foreign tax credits will become available under U.S.
law to reduce the effect on the Company's overall tax liability.
Income (loss) before taxes and the provision for (benefit from) income
taxes were comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
Income before provision for income taxes:
Domestic 833,000 1,905,000 6,040,000
Foreign 411,000 297,000 805,000
---------- ---------- ------------
1,244,000 2,202,000 6,845,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
F-13
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
9. INCOME TAXES (CONTINUED)
Deferred tax assets consist primarily of the following temporary
differences:
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net operating loss carryforwards............. $ 17,788,000 $ 16,595,000 $ 2,793,000
Intangible asset basis....................... 1,245,000 2,147,000 1,854,000
Patent amortization.......................... 1,233,000
Deferred revenue............................. 433,000 531,000 776,000
Reserves..................................... 348,000 457,000 663,000
Employee benefits............................ 298,000 307,000 378,000
Depreciation................................. (5,000) 249,000 300,000
Other........................................ (9,000) 194,000 (260,000)
-------------- -------------- --------------
Gross deferred assets........................ 21,331,000 20,480,000 6,504,000
Valuation allowance.......................... (16,330,000) (15,633,000) (2,735,000)
-------------- -------------- --------------
Net deferred tax assets...................... $ 5,001,000 $ 4,847,000 $ 3,769,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The current year change in the valuation allowance of $798,000 resulted from
the utilization and expiration of net operating losses.
At March 31,1997, the Company has net operating loss carryforwards of
approximately $43,300,000 and $2,800,000, respectively, for federal and
California income tax purposes, which begin to expire in 2003. As a result of an
equity ownership change in prior years, the use of federal and California net
operating loss carryforwards is limited to approximately $1,000,000/yr. During
fiscal 1997, in conjunction with an IRS audit, the Company made the decision
that due to such limitations, a portion of the net operating loss carryforwards
would never be realized. As a result, the gross deferred tax asset and valuation
allowance were reduced by approximately $12,100,000.
10. COMMITMENTS AND CONTINGENCIES
COMMITMENTS--The Company is obligated under noncancelable capital and
operating leases for its principal operating facility and certain furniture and
office equipment. The Company incurred $120,000, $775,000 and $892,000 in rent
expense during the years ended March 31, 1995, 1996 and 1997, respectively.
During the year ended March 31, 1997, $707,000 of such was to a related party
(Note 13).
F-14
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease commitments at March 31, 1997 under noncancelable
leases that have initial or remaining terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ------------
<S> <C> <C>
Year ending March 31:
1998............................................................. $ 242,000 $ 885,000
1999............................................................. 236,000 856,000
2000............................................................. 142,000 873,000
2001............................................................. 99,000 61,000
2002............................................................. 73,000
----------- ------------
Total minimum payments required.................................... 792,000 $ 2,675,000
------------
------------
Less amount representing interest.................................. (136,000)
-----------
Capital lease obligations (Note 8)................................. 656,000
Less current portion of capital lease obligations.................. (184,000)
-----------
$ 472,000
-----------
-----------
</TABLE>
Certain of the Company's customers require the Company to be bonded to
ensure performance under certain contracts or to guarantee outstanding bids. At
March 31, 1997, the Company had outstanding performance bonds ensuring
performance under various contracts, which totaled $6,369,000.
LITIGATION--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 March 31, 1997, the Company is not a party to any legal
proceedings, the adverse outcome of which, in management's opinion, individually
or in aggregate, would have a material adverse effect on the Company's results
of operations or financial position.
11. STOCK BENEFIT PLANS
EXECUTIVE STOCK OPTION PLAN--The Company adopted the Executive Stock Option
Plan (the Executive Plan) in May 1992 which provides for the granting of
incentive stock options and nonstatutory options to purchase shares of the
Company's common stock and restricted stock grants covering an aggregate of
800,000 shares of the Company's common stock. As of March 31, 1997, there were
options outstanding to purchase 546,000 shares under the Executive Plan at a
weighted average exercise price of $5.51 per share.
1994 STOCK OPTION PLAN--The Company adopted the 1994 Stock Option Plan (the
1994 Plan) in December 1993. The 1994 Plan provides for the granting of
incentive stock options and nonstatutory options to purchase shares of the
Company's common stock and restricted stock grants covering an aggregate of
744,000 shares of the Company's common stock. As of March 31, 1997, there were
options outstanding to purchase 532,000 shares under the 1994 Plan at a weighted
average exercise price of $5.51 per share.
1996 STOCK INCENTIVE PLAN--The Company adopted the 1996 Stock Incentive Plan
(the 1996 Plan) in April 1996. The 1996 Plan provides for the granting of
incentive stock options and nonstatutory options.
F-15
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
11. STOCK BENEFIT PLANS (CONTINUED)
The 1996 Plan provides for options to purchase shares of the Company's common
stock and restricted stock grants covering an aggregate of 500,000 shares of the
Company's common stock. As of March 31, 1997, there were options outstanding to
purchase 97,000 shares under the 1996 Plan at a weighted average exercise price
of $9.65 per share.
The exercise price of incentive stock options under the above Plans must at
least be equal to the fair market value of a share of common stock on the date
the option is granted (110% with respect to optionees who own at least 10% of
the outstanding common stock). Nonstatutory options shall have an exercise price
of not less than 85% of the fair market value of a share of common stock on the
date such option is granted (110% with respect to optionees who own at least 10%
of the outstanding common stock). The options must expire no later than ten
years from the date of grant (five years with respect to optionees who own at
least 10% of the outstanding common stock). Vesting is generally 20% at the end
of the first year with the remaining vesting over four years on a pro rata
basis. As of March 31, 1997, there were options exercisable under these Plans to
purchase 525,000 shares at a weighted average exercise price of $4.39 per share.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
BALANCE, April 1, 1994......................................... 456,000 $ 2.50
Granted........................................................ 362,600 $ 2.50
Canceled....................................................... (12,400) $ 2.50
----------
BALANCE, March 31, 1995........................................ 806,200 $ 2.50
Granted (weighted average fair value of $3.16)................. 601,200 $ 9.89
Exercised...................................................... (123,200) $ 2.50
Canceled....................................................... (23,200) $ 5.12
----------
BALANCE, March 31, 1996........................................ 1,261,000 $ 5.97
Granted (weighted average fair value of $5.62)................. 202,000 $ 10.05
Exercised...................................................... (152,000) $ 2.84
Canceled....................................................... (136,000) $ 11.94
----------
BALANCE, March 31, 1997........................................ 1,175,000 $ 6.39
----------
----------
</TABLE>
Common shares reserved for future grant under the above option plans were
594,000 at March 31, 1997.
F-16
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
11. STOCK BENEFIT PLANS (CONTINUED)
The outstanding stock options primarily vest ratably over a five year
period. Stock options outstanding at March 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -----------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
PRICES MARCH 31, 1997 LIFE PRICE MARCH 31, 1997 PRICE
- ----------------- -------------- --------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$2.50 524,000 6.2 $ 2.50 371,000 $ 2.50
$3.75 - $6.25 147,000 8.56 $ 5.21 58,000 $ 5.31
$7.50 182,000 8.6 $ 7.50 32,000 $ 7.50
$8.75 - $10.25 144,000 9.1 $ 9.50 26,000 $ 8.90
$12.50 - $22.50 178,000 8.89 $ 15.64 38,000 $ 15.76
-------------- --- ------ ------- ------
1,175,000 7.5 $ 6.46 525,000 $ 4.39
</TABLE>
ADDITIONAL STOCK PLAN INFORMATION (SFAS NO. 123)
As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with APB Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and its related interpretations. No
compensation expense has been recognized in the financial statements for
employee stock arrangements, as all grants have been at exercise prices equal to
or greater than the market value of the underlying shares at the date of grant.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the
disclosure of pro forma net income and earnings per share had the Company
adopted the fair value method as of the beginning of fiscal 1996. Under SFAS No.
123, the fair value of stock-based awards to employees is calculated through the
use of option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values.
The Company's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions: expected life, two years
following vesting; stock volatility, 78% in 1997 and 55% in 1996; risk free
interest rates, 6.00% in 1997 and 5.8% in 1996 and no dividends during the
expected term. The Company's calculations are based on a single option approach
and forfeitures are recognized as they occur. If the computed fair values of the
1997 and 1996 awards had been amortized to expense over the vesting period of
the awards, pro forma net income would have been $3,874,000, or $0.41 per share
and $1,489,000, or $0.19 per share, in 1997 and 1996, respectively. These
amounts are based on calculated values for option awards in 1997 and 1996 of
$1,038,000 and $1,735,000, respectively. The impact of stock options granted
prior to 1996 has been excluded from the pro forma calculation; accordingly, the
1997 and 1996 pro forma adjustments are not indicative of future period pro
forma adjustments, when the calculation may apply to all applicable stock
options.
EMPLOYEE STOCK PURCHASE PLAN--The Company adopted the Employee Stock
Purchase Plan (the Purchase Plan) in April 1996, covering an aggregate of
100,000 shares of common stock. Employees are
F-17
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
11. STOCK BENEFIT PLANS (CONTINUED)
eligible to participate if they are employed by the Company for at least 30
hours per week and if they have been employed by the Company for at least one
year. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 15% of an employee's
compensation or a specified number of shares. The price of stock purchased under
the Purchase Plan is equal to 85% of the fair market value of the common stock.
The Purchase Plan will terminate on December 31, 2006. As of March 31, 1997,
20,400 shares were available for purchase.
12. EMPLOYEE BENEFIT PLANS
The Company's 401(k) Savings Plan (the Savings Plan) covers domestic
full-time employees with 90 days of consecutive service. Under the terms of the
Savings Plan, the Company, at its election, can match participant contributions.
For the fiscal years ended March 31, 1995, 1996 and 1997, the Company elected
not to match participant contributions.
Effective April 1, 1993, the Company adopted a Profit Sharing Plan (the
Plan) that covers all domestic full-time employees with 90 days of consecutive
service. Under the Plan, each eligible employee will receive a bonus, determined
under the formula set forth in the Plan, based on the Company's earnings.
Bonuses incurred under the Plan totaled approximately $447,000, $408,000 and
$747,000 for the years ended March 31, 1995, 1996 and 1997, respectively. The
Plan was terminated as of December 31, 1996.
13. RELATED-PARTY TRANSACTIONS
On May 13, 1995, the Company sold its principal operating facility (the
Property) to RICOL, LLC, a California limited liability company (RICOL), which
is controlled by Richard M. Giles, the Company's Chairman, President and Chief
Executive officer, for a total purchase price equal to $4,630,000, the appraised
fair market value of the Property plus $70,000 to cover certain closing costs,
which also approximated its net book value. Such purchase price was paid to the
Company by delivery of a promissory note in the principal amount of $1,230,000
and cash in the amount of $3,400,000. In connection with such transaction, the
Company and RICOL entered into a lease for the Property for a term of five
years, expiring May 12, 2000, with rent of $58,930 per month, subject to
increases based on increases in the Consumer Price Index, not to exceed 6% or be
less than 2% during any year of such term. During fiscal 1997, the Company
received $730,000 of principal payments on the note receivable from RICOL. The
remaining balance bears interest at a bank's reference rate (8.5% at March 31,
1997), payable annually with the principal balance due in 2003. No gain or loss
was recognized on this transaction.
From time to time, the Company has made loans to Mr. Giles, which have been
evidenced by promissory notes. During fiscal 1997, the principal amount
outstanding equaled $50,000. During fiscal 1996, the principal amount
outstanding under such loans ranged from $23,000 to $147,000, and all of such
loans had been repaid as of March 31, 1996. In February 1996, the Company loaned
$150,000 to Mr. Giles. Such loan is collateralized by a pledge of 150,000 of the
shares of the Company's common stock owned by Mr. Giles, bears interest at 5.5%,
and principal and interest are due as of March 1, 1998. The principal amount
along with accrued interest was repaid during fiscal year 1997.
In November 1994, the Company loaned $50,000 to Charles L. Smith, a member
of the Board of Directors and the Company's former chief operating officer. In
February 1996, the Board of Directors voted to grant this individual a bonus in
the amount of such loan, through the forgiveness of the related
F-18
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
13. RELATED-PARTY TRANSACTIONS (CONTINUED)
indebtedness, and to provide him and his eligible dependents with medical and
dental insurance coverage equal to that provided to all vice presidents of the
Company so long as he continues to serve as a member of the Company's Board of
Directors.
In February 1996, the Company loaned an executive of the Company the sum of
$300,000 to enable him to exercise 120,000 vested options to purchase shares of
the Company's common stock and $10,000 to pay certain tax obligations. The loan
is collateralized by the related shares, bears interest at 5.5%, and principal
and interest are due as of March 1, 1998. Due to its nature, the loan has been
classified as a reduction of stockholders' equity in the accompanying
consolidated financial statements.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's balance sheets include the following financial instruments:
cash and cash equivalents, trade accounts receivable, notes receivable from
related parties, accounts payable, accrued liabilities and debt. The Company
considers the carrying amounts in the financial statements of all financial
instruments to approximate their fair value because of the relatively short
period of time between origination of the instruments and their expected
realization or the fact that such instruments have interest rates which
approximate current market rates.
15. SUBSEQUENT EVENT (UNAUDITED)
On May 7, 1997, the Company acquired all the outstanding shares of TFP Inc.
(TFP) pursuant to an Agreement and Plan of Reorganization (the Merger
Agreement). As a result of the transaction, TFP became a wholly-owned subsidiary
of the Company. All TFP common stock, preferred stock and outstanding options to
purchase TFP common stock were converted into the right to receive 1,515,990
shares of the Company's common stock, consisting of 1,399,494 directly issued
shares and options to acquire 116,496 shares of the Company's common stock. The
Company intends to account for the Acquisition as a pooling-of-interests.
TFP is a calendar year-end company, formed in 1988, and is a supplier of
digital mugshot systems used by law enforcement, jail and correctional agencies.
TFP's software applications also include jail management, jail property
management and document management. The Company intends to continue to market
TFP's products under the TFP name.
Following is pro forma revenue, net income and earnings per share had the
acquisition occurred as of March 31, 1997, combining the Company's results of
operations for the year ended March 31, 1997 with TFP's results of operations
for the year ended December 31, 1996:
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
-------------------
(IN THOUSANDS,
EXCEPT EARNINGS PER
SHARE)
<S> <C>
Revenues................................................................. $ 66,083
Net income............................................................... $ 5,139
Net income per share..................................................... $ 0.47
</TABLE>
The pro forma information presented is not necessarily indicative of either
the results of operations that would have occurred had the merger been effected
on March 31, 1997 nor of future results of operations.
F-19
<PAGE>
PRINTRAK INTERNATIONAL INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
DESCRIPTION PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------------------------------ --------------- ------------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended March 31, 1995:
Alllowance for doubtful accounts receivable................. $ -- $ -- $ -- $ --
Allowance for excess and obsolete inventories............... 395 243 (473) 165
----- ----- ----- -----
Total....................................................... $ 395 $ 243 $ (473) $ 165
----- ----- ----- -----
----- ----- ----- -----
Year ended March 31, 1996:
Alllowance for doubtful accounts receivable................. $ -- $ 309 $ (75) $ 234
Allowance for excess and obsolete inventories............... 165 652 (460) 357
----- ----- ----- -----
Total....................................................... $ 165 $ 961 $ (535) $ 591
----- ----- ----- -----
----- ----- ----- -----
Year ended March 31, 1997:
Alllowance for doubtful accounts receivable................. $ 234 $ 47 $ (81) $ 200
Allowance for excess and obsolete inventories............... 357 603 (740) 220
----- ----- ----- -----
Total....................................................... $ 591 $ 650 $ (821) $ 420
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
S-1
