<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
---------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
------------
PRINTRAK INTERNATIONAL INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0070547
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 North Tustin Avenue Anaheim, California 92807
--------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(714) 238-2000
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been subject
to such filing requirements for the past 90 days.
x Yes No
------ -----
11,228,149 shares of the issuer's common stock, par value $0.0001
per share, were outstanding as of October 31, 1997.
<PAGE>
FORM 10-Q
---------
CONTENTS
--------
Page Number
PART I - FINANCIAL INFORMATION -----------
Item 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1997 (unaudited)
and March 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations for the three
month periods ended September 30, 1997 and 1996 . . . . . . . . . 4
Unaudited Consolidated Statements of Operations for the six
month periods ended September 30, 1997 and 1996 . . . . . . . . . 5
Unaudited Consolidated Statements of Cash Flows for the six
month periods ended September 30, 1997 and 1996. . . . . . . . . . 6
Notes to the Consolidated Financial Statements. . . . . . . . . . . . 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders . . . . . . 17
Item 6: Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 17
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
(UNAUDITED) (RESTATED,
SEE NOTE 1)
ASSETS ------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 2,476 $ 3,832
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . 2,130 4,599
Accounts receivable, net (Note 2) . . . . . . . . . . . . . . . . . 33,495 23,539
Inventories, net (Note 3) . . . . . . . . . . . . . . . . . . . . . 6,891 5,174
Prepaid expenses and other current assets.. . . . . . . . . . . . . 1,748 518
Deferred income tax. . . . . . . . . . . . . . . . . . . . . . . . 955 1,058
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 47,695 38,720
Notes receivable from related parties. . . . . . . . . . . . . . . . . 551 543
Property, plant and equipment - net. . . . . . . . . . . . . . . . . . 6,203 5,570
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 2,867 2,867
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,907 1,858
-------- --------
$ 62,223 $ 49,558
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,683 $ 4,431
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 8,660 4,595
Current portion of long-term debt (Note 4). . . . . . . . . . . . . 290 302
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . 9,070 3,919
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . 346 631
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 25,049 13,878
Long-term debt, less current portion (Note 4). . . . . . . . . . . . . 8,062 1,524
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . 159 159
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 33,270 15,561
Stockholders' equity:
Common stock ($.0001 par value; 20,000,000 shares authorized;
11,224,371 and 10,425,494 shares issued and outstanding) . . . . 1 1
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . 17,508 16,756
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 11,814 17,527
Note receivable from stockholder. . . . . . . . . . . . . . . . . . (300) (300)
Cumulative foreign exchange translation adjustment. . . . . . . . . (70) 13
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 28,953 33,997
-------- --------
$ 62,223 $ 49,558
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS
ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
(RESTATED,
SEE NOTE 1)
------------- -------------
<S> <C> <C>
REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,905 $ 12,508
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,322 2,654
-------- --------
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . 19,227 15,162
COST OF REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,063 6,925
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,178 1,513
-------- --------
Total cost of revenues. . . . . . . . . . . . . . . . . . . . . . . 11,241 8,438
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,986 6,724
OPERATING EXPENSES:
Research, development and engineering. . . . . . . . . . . . . . . . . 2,480 3,003
Selling, general and administrative. . . . . . . . . . . . . . . . . . 4,907 2,971
Acquisition related expenses . . . . . . . . . . . . . . . . . . . . . 555 -
In-process R & D expense . . . . . . . . . . . . . . . . . . . . . . . 5,900 -
-------- --------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . 13,842 5,974
Operating (loss) income. . . . . . . . . . . . . . . . . . . . . . . (5,856) 750
Other (income) expense . . . . . . . . . . . . . . . . . . . . . . . . (177) 47
-------- --------
(Loss) income before provision for income taxes. . . . . . . . . . . (5,679) 703
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . 88 258
-------- --------
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . $(5,767) $ 445
-------- --------
-------- --------
Net (loss) income per share (Note 5). . . . . . . . . . . . . . . . $ (.49) $ .04
-------- --------
-------- --------
Weighted average shares outstanding. . . . . . . . . . . . . . . . . . 11,769 11,405
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
(RESTATED,
SEE NOTE 1)
------------- -------------
<S> <C> <C>
REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,297 $ 23,956
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . 6,192 5,322
-------- --------
Total revenues . . . . . . . . . . . . . . . . . . . . . . 34,489 29,278
COST OF REVENUES:
System . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,397 12,570
Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . 3,820 3,040
-------- --------
Total cost of revenues . . . . . . . . . . . . . . . . . . 19,217 15,610
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 15,272 13,668
OPERATING EXPENSES:
Research, development and engineering. . . . . . . . . . . . 5,070 5,958
Selling, general and administrative. . . . . . . . . . . . . 8,716 6,182
Acquisition related expenses . . . . . . . . . . . . . . . . 1,429 -
In-process R & D expense . . . . . . . . . . . . . . . . . . 5,900 -
-------- --------
Total operating expenses . . . . . . . . . . . . . . . . . 21,115 12,140
Operating (loss) income. . . . . . . . . . . . . . . . . . (5,843) 1,528
Other (income) expense . . . . . . . . . . . . . . . . . . . (246) 311
-------- --------
(Loss) income before provision for income taxes. . . . . . (5,597) 1,217
Provision for income taxes . . . . . . . . . . . . . . . . . 117 452
-------- --------
Net (loss) income. . . . . . . . . . . . . . . . . . . . . $ (5,714) $ 765
-------- --------
-------- --------
Net (loss) income per share (Note 5). . . . . . . . . . . $ (.49) $ .07
-------- --------
-------- --------
Weighted average shares outstanding. . . . . . . . . . . . 11,771 10,235
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
(RESTATED,
SEE NOTE 1)
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . $(5,714) $ 765
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 1,379 1,276
Write-off of In process R&D. . . . . . . . . . . . . . . . . . . . 5,900 --
Loss on sale of fixed assets . . . . . . . . . . . . . . . . . . . 14 90
Deferred tax provision . . . . . . . . . . . . . . . . . . . . . . 103 207
Changes in operating assets and liabilities (net of assets
acquired):
Accounts receivable, net. . . . . . . . . . . . . . . . . . . (6,418) (4,439)
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . 237 (2,713)
Prepaid expenses and other current assets . . . . . . . . . . (1,053) (787)
(Interest) Proceeds from notes receivable & other assets. . . (8) 779
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . 946
Accounts payable and other current liabilities. . . . . . . . 608 (2,340)
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . 1,508 2,158
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . 1,766 (1,234)
------- -------
Net cash (used in) provided by operating activities. . . . . . . . (732) (7,017)
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (679) (223)
Business acquisitions. . . . . . . . . . . . . . . . . . . . . . . (9,606) --
Proceeds from sale of short-term investments . . . . . . . . . . . . 2,469 --
------- -------
Net cash (used in) provided by investing activities. . . . . . . . (7,816) 556
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . 6,523 (4,668)
Additional Paid in Capital . . . . . . . . . . . . . . . . . . . . . 752 14,707
------- -------
Net cash provided by (used in) financing activities. . . . . . . . 7,275 10,039
Effect of exchange rate changes on cash balances . . . . . . . . . . (83) 5
------- -------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . (1,356) 3583
Cash and cash equivalents, beginning of year . . . . . . . . . . . . 3,832 3,625
------- -------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . $ 2,476 $ 7,208
Non-Cash Transaction-Transfer of Inventory to Fixed Assets . . . . . 580 2,633
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense . . . . . . . . . $ 95 $ 174
Cash paid during the period for income taxes . . . . . . . . . . . . $ 431 $ 250
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS
ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
SIX MONTHS
ENDED
SEPTEMBER 30, 1997
------------------
Detail of business acquired in purchase transaction:
Purchased In-Process Research and Development. . . . . . $ 5,900
Fair Value of Assets Acquired. . . . . . . . . . . . . . 11,008
Liabilities Assumed. . . . . . . . . . . . . . . . . . . (7,301)
--------
Cash Paid for the Acquisition, net of cash acquired. . . 9,606
7
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
GENERAL BUSINESS
Printrak International Inc. ("the Company") is a worldwide supplier of
biometric identification systems used primarily in law enforcement
applications and with increasing frequency in civil applications such as
welfare and immigration control. The Company provides networked fingerprint,
photo imaging, computer-aided dispatching, automated records management and
document imaging systems.
On May 7, 1997, Printrak International Inc. acquired all of the issued and
outstanding capital stock of TFP Inc., a South Carolina corporation, in a
transaction accounted for as a pooling-of-interest. As a result of the
acquisition, TFP became a wholly-owned subsidiary of the Company and the
outstanding shares and outstanding warrants to purchase shares of TFP Common
Stock and Series A Preferred Stock have been converted into an aggregate
1,399,494 shares of fully paid and non-assessable Common Stock, $.0001 par
value, of Printrak. The outstanding options to purchase shares of TFP Common
Stock have been converted into the right to acquire 116,496 shares of Common
Stock of the Company. The purchase price and all other terms of the
Agreement were determined pursuant to arm's-length negotiations between the
parties.
On July 21, 1997 the Company acquired a business unit of SCC Communications
Corp. (SCC) located in Boulder, Colorado, in a transaction accounted for
under purchase accounting. As a result of the acquisition, the business unit
will operate as a division of the Company. The purchase price and all other
terms of the transactions were determined by arm's-length negotiations between
the parties.
On August 29, 1997, the Company acquired SunRise Imaging ("SunRise"), a
California corporation in a transaction accounted for under purchase
accounting. As a result of the acquisition, Sunrise became a wholly owned
subsidiary of the Company and the outstanding shares of Common Stock of
SunRise were converted into the right to receive an aggregate of
$10,175,000, plus an additional amount of up to $725,000 to be determined
based on the revenue of SunRise for fiscal 1997. The purchase price and all
other terms of the transactions were determined by arm's-length negotiations
between the parties.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). These consolidated financial statements reflect all
adjustments, which are normal and recurring in nature, and which in the
opinion of management are necessary to a fair statement of the financial
position and results of operations as of and for the three month and six
month periods ended September 30, 1997 and 1996.
With the exception of the Boulder division, 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 recognizes system
revenue for the Boulder division under percentage of completion accounting
based on the achievement of specified milestones. Under both revenue
recognition policies, if a loss on a contract becomes known, the entire
amount of the estimated loss on the contract is accrued. Revenue for file
conversion services 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.
8
<PAGE>
The accompanying consolidated financial statements as of March 31, 1997 and
for the three month and six month periods ended September 30, 1996 have been
restated to reflect the business combination between Printrak and TFP, its
subsidiary, and are based on each Company's respective historical financial
statements and notes thereto. The results of operations for the three month
period ended September 30, 1997 are not necessarily indicative of the results
of operations for the entire fiscal year ending March 31, 1998. These
consolidated financial statements and related footnotes should be read in
conjunction with the consolidated financial statements and related footnotes
presented in the Company's 10-K.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997
(unaudited)
-------------------- --------------
<S> <C> <C>
Billed receivables . . . . . . . . . . . . . . $ 21,136 $ 15,435
Unbilled receivables . . . . . . . . . . . . . 12,847 8,337
-------- --------
33,983 23,772
Less allowance for doubtful accounts . . . . . (488) (233)
-------- --------
$ 33,495 $ 23,539
-------- --------
-------- --------
</TABLE>
Unbilled receivables consist of system and maintenance revenues which have
been earned but not invoiced because of contractual terms of the underlying
agreements.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997
(unaudited)
------------------- --------------
<S> <C> <C>
Raw materials. . . . . . . . . . . . . . . . . $ 4,590 $ 3,725
Work in process. . . . . . . . . . . . . . . . 3,065 1,690
Finished goods . . . . . . . . . . . . . . . . -- 36
------- -------
7,655 5,451
Less allowance for inventory obsolescence. . . (764) (277)
------- -------
$ 6,891 $ 5,174
------- -------
------- -------
</TABLE>
9
<PAGE>
4. DEBT
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997
(unaudited)
------------------ --------------
<S> <C> <C>
Revolving line of credit with bank . . . . . . $ 2,685 $ 1,000
Acquisition line . . . . . . . . . . . . . . . 5,000 -
Obligations under capital leases . . . . . . . 612 771
Other. . . . . . . . . . . . . . . . . . . . . 55 55
------- -------
Total debt . . . . . . . . . . . . . . . . . 8,352 1,826
Less current installments of
long-term debt . . . . . . . . . . . . . . . (290) (302)
------- -------
$ 8,062 $ 1,524
------- -------
------- -------
</TABLE>
The Company's revolving credit agreement provides for a total of $15 million
in secured borrowings for working capital and acquisitions and bears interest
at variable rates. The loan is presently scheduled to mature July 31, 1998,
and the Company is currently negotiating a renewal of the agreement which
will extend the maturity. As of September 30, 1997, the Company had
approximately $7.3 million of available borrowings.
The revolving credit agreement contains certain financial and other covenants
with which the Company must comply on an on-going basis. Management believes
the Company is in compliance with all terms and covenants of this agreement
at September 30, 1997.
5. WARRANTS
On September 15, 1997, a warrant to purchase up to 20,000 shares of the
Company's Common Stock was issued to an outside consultant as payment in full
of services rendered. The warrant may be exercised on or before September 15,
2007. The exercise price per share is $11.15, the fair market value on the
issuance date.
6. ACQUISITIONS
On May 7, 1997, the Company acquired all of the issued and outstanding
capital stock of TFP Inc. ("TFP"), a South Carolina corporation, in a
transaction accounted for as a pooling-of-interest. As a result of the
acquisition, TFP became a wholly-owned subsidiary of the Company and the
outstanding shares and outstanding warrants to purchase shares of TFP Common
Stock and Series A Preferred Stock were converted into an aggregate 1,399,494
shares of fully paid and non-assessable Common Stock, $.0001 par value, of
the Company. The outstanding options to purchase shares of TFP Common Stock
were converted into the right to acquire 116,496 shares of Common Stock of
the Company. The purchase price and all other terms of the Agreement were
determined pursuant to arm's-length negotiations between the parties.
TFP develops, markets, sells and fully supports complete "turnkey"
computerized video electronic image-based systems for law enforcement and
correctional agencies worldwide. TFP also sells computerized video electronic
image-based systems and document retrieval systems to non-law enforcement
entities including other governmental entities and private companies.
As a result of the pooling-of-interest transaction between the Company and
TFP, the consolidated financial statements and notes thereto for all periods
presented have been restated to include the accounts of TFP. Separate results
of operation of the combined entities for the three and six months ended
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Three months Six months
Ended Ended
September 30, 1996 September 30, 1996
(in thousands, except per share data)
------------------ ------------------
<S> <C> <C>
Revenues:
Company (As previously reported). . . . . . $ 13,453 $ 25,573
TFP . . . . . . . . . . . . . . . . . . . . 1,709 3,705
-------- --------
Combined $ 15,162 $ 29,278
-------- --------
-------- --------
Net Income:
Company (As previously reported). . . . . . $ 305 $ 454
TFP . . . . . . . . . . . . . . . . . . . . 140 311
-------- --------
Combined. . . . . . . . . . . . . . . . . . $ 445 $ 765
-------- --------
-------- --------
Net Income per Common Share:
As previously reported. . . . . . . . . . . $ 0.03 $ 0.05
-------- --------
-------- --------
As restated . . . . . . . . . . . . . . . . $ 0.04 $ 0.07
-------- --------
-------- --------
</TABLE>
Merger expenses incurred to consummate the TFP transaction totaled $.8
million, consisting of accounting fees, legal fees, financial printing fees,
stock transfer fees and certain other transaction costs, all of which are
included in the accompanying Consolidated Statement of Operations for the six
month period ended September 30, 1997.
7. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding.
Weighted average common and common equivalent shares include common shares and
stock options using the treasury stock method.
10
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTORY NOTE
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934 and the Company
intends that such forward-looking statements be subject to the safe harbors
created thereby. These forward-looking statements include (i) the existence
and development of the Company's technical and manufacturing capabilities,
(ii) anticipated competition, (iii) potential future growth in revenues and
income, (iv) potential future decreases in costs, and (v) the need for, and
availability of, additional financing.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will not
lose a significant customer or customers or experience increased fluctuations
of demand or rescheduling of purchase orders, that the Company's markets will
continue to grow, that the Company's products will remain accepted within
their respective markets and will not be replaced by new technology, that
competitive conditions within the Company's markets will not change
materially or adversely, that the Company will retain key technical and
management personnel, that the Company's forecasts will accurately anticipate
market demand, and that there will be no material adverse change in the
Company's operations or business. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions, and future business decisions, all of
which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. The Company believes the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, the business and operations of the Company are subject to
substantial risks which increase the uncertainty inherent in such
forward-looking statements. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
The following is management's discussion and analysis of certain significant
factors which have affected the earnings and financial position of the
Company during the period included in the accompanying financial statements.
This discussion compares the three-month period ended September 30, 1997 with
the three-month period ended September 30, 1996, as well as the six month
period ended September 30, 1997 with the six month period ended September 30,
1996. This discussion should be read in conjunction with the financial
statements and associated notes.
11
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PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO
THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 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 totaled $19.2 million for the quarter ended September 30, 1997,
increasing 26.8% from revenues of $15.2 million for the quarter ended
September 30, 1996. Revenue contributions from SunRise Imaging and the
Company's Boulder division contributed $2.6 million or 65% of the increase
over the prior period. System revenues increased 27.2% to $15.9 million for
the second quarter, up from $12.5 million for the second quarter of the
previous year. System revenues resulting from the two newly acquired
divisions were $2.2 million of the $3.4 million increase from the prior
period.
Maintenance revenues equaled $3.3 million for the three-month period ended
September 30, 1997, up from revenues of $2.7 million for the three month
period ended September 30, 1996. The increase in maintenance revenues is due
in part to the SunRise Imaging and Boulder division acquisitions, but is also
reflective of the expiration of warranties on some contracts and an overall
expansion in the customer installed base over the prior year. Upon
expiration of the system warranty, customers enter into maintenance
agreements which yield revenue over the life of the maintenance agreement.
The Company's quarterly revenues have in the past, and in the future may be
expected to fluctuate. These fluctuations are the result of a variety of
factors, including: the Company's delivery cycle, variations in order size,
variations in product mix and the timing of orders.
GROSS PROFIT
Cost of revenues primarily consists of purchased materials procured for use
in the assembly of the Company's products, file conversion costs and
maintenance expenses.
Overall gross profit increased 18.8% to $8.0 million for the quarter ended
September 30, 1997 in comparison to $6.7 million for the quarter ended
September 30, 1996. Gross margin was 41.5% for the three months ended
September 30, 1997, down from 44.3% for the three months ended September 30,
1996. The gross profit for system revenues increased to $6.8 million for the
quarter ended September 30, 1997 from $5.6 million for the same quarter of
the previous fiscal year. The system gross margin decreased to 43.0% for the
current quarter from 44.6% for the first quarter of the previous year.
Overall maintenance gross profit remained consistent at $1.1 million for the
quarters ended September 30, 1997 and September 30, 1996. Gross margin
related to maintenance revenues decreased to 34.4% for the second quarter of
the current year in comparison to 43.0% for the second quarter of the
previous year.
The decline in system margin is due primarily to increased warranty expense
realized as a result of longer acceptance cycles on certain large scale
installations. The decrease in the Company's maintenance margin is
reflective of certain significant costs which the Company is incurring in the
short-term to implement a world-wide customer service network which will
enhance service to all customers. Customer service margin erosion is also the
result of certain inherited service contracts from the Boulder division that
yield somewhat lower margins than the Company has previously experienced on
AFIS maintenance contracts; these unfavorable contracts will be re-negotiated
as they expire. The Company's margin may be affected quarter-to-quarter by
several factors, including the proportion of total revenues derived from
competitive bid process and the mix of products sold.
12
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PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses (RD&E) are comprised primarily
of compensation paid to personnel engaged in research, development and
engineering activities, amounts paid for outside services and the cost of
materials used in the development of hardware and software products.
RD&E expenses decreased 17.4% to $2.5 million for the quarter ended September
30, 1997, down from $3.0 million for the quarter ended September 30, 1996.
RD&E expenses, as a percentage of revenues, decreased to 12.9% for the three
month period ended September 30, 1997 from 19.8% for the three month period
ended September 30, 1996. The decrease in RD&E expense is due primarily to a
reduction in contract labor utilized during the current year. In the prior
year, significant contract labor expense was incurred to develop criminal
history system applications.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses consist principally of
compensation paid to sales, marketing, and administrative personnel, payments
to consultants, professional service fees, travel and related expenses and
other marketing expenses.
For the three month period ended September 30, 1997, SG&A expenses increased
to $4.9 million from $3.0 million for the three month period ended September
30, 1996. SG&A expenses, as a percentage of revenues, equaled 25.5% for the
three month period ended September 30, 1997 versus 19.6% for the same period
of the previous year. This reflects an overall increase in SG&A expense of
$1.9 million or 65% between the second quarter of the current year and the
prior year's second quarter. The increase in SG&A expenses is due primarily
to increased personnel in sales and marketing and to the establishment of a
sales commission plan which provides incentive payments based on the
achievement of established goals. Additionally, the Company has incurred
higher travel and marketing expenses as a result of significant sales
activity, particularly in international markets. These efforts have resulted
in $43.5 million in system orders during the first two quarters.
AQUISITION RELATED EXPENSE
The acquisition expense of $0.6 million includes costs for employee
relocation, a facility closure in Idaho associated with the Company's Sunrise
Imaging acquisition and other non-capitalizeable acquisition type costs.
IN-PROCESS RESEARCH & DEVELOPMENT EXPENSE
The in-process R & D expense of $5.9 million is the value assigned to SunRise
Imaging's developmental products. Goodwill was reduced by a corresponding
amount and the remaining goodwill value will be amortized over varying
periods, ranging from three to ten years.
OTHER EXPENSE / INCOME
Other income for the quarter ended September 30, 1997 equaled $0.2 million in
comparison to $0.1 million expense for the quarter ended September 30, 1996.
Other income for the period ended September 30, 1997 is comprised of interest
income from investments and notes receivable from related parties.
13
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PROVISION FOR INCOME TAXES
Income tax expense for the quarter ended September 30, 1997 equaled $.1
million in comparison to expense of $.3 million for the quarter ended
September 30, 1996. The Company's current year tax provision is based on a
statutory rate of 40%, excluding in-process R & D and acquisition related
expenses, and reflects the impact of state and foreign taxes, as well as the
utilization of limited net operating loss carryforwards.
SIX MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO
THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 1996
TOTAL REVENUES
Revenues totaled $34.5 million for the six months ended September 30, 1997,
increasing 17.8% from revenues of $29.3 million for the prior year. Revenue
from the purchase acquisitions contributed $2.6 million to the year-over-year
increase. Systems revenue increased 18.1% over the prior year from $24.0
million to $28.3 million. The primary contributor to the system revenue
increase was incremental revenues associated with Sunrise Imaging and the
Company's Boulder division.
Maintenance revenues equaled $6.2 million for the six month period ended
September 30, 1997, up from revenues of $5.3 million for the six month period
ended September 30, 1996. The increase in maintenance revenues is due, in
part, to the Company's acquisitions, but it is also reflective of the
expiration of warranties on some contracts and an overall expansion in the
customer installed base over the prior year.
GROSS PROFIT
Overall gross profit increased 11.7% to $15.3 million for the six months
ended September 30, 1997 in comparison to $13.7 million for the prior year.
Gross margin was 44.3% for the six months ended September 30, 1997, down from
46.7% for the six months ended September 30, 1996. The gross profit for
system revenues increased to $12.9 million for the period ended September 30,
1997 from $11.4 million for the same period of the previous fiscal year. The
system gross margin decreased to 45.6% for the current quarter from 47.5% for
the second quarter of the previous year. Overall maintenance gross profit
increased slightly to $2.4 million for the six month period ended September
30, 1997 from $2.3 million for the six months ended September 30, 1996. Gross
margin related to maintenance revenues decreased to 38.3% for the first six
months of the current year in comparison to 42.9% for the first six months of
the previous year.
The decline in system margin is due primarily to increased warranty expense
realized as the result of longer acceptance cycles on certain large scale
installations. The decrease in the Company's maintenance margin is reflective
of certain significant costs which the Company is incurring in the short-term
to implement a world-wide customer service network which will enhance overall
service to all customers. Customer service margin erosion is also the result
of certain inherited service contracts from the Boulder division that yield
somewhat lower margins than the Company has previously experienced on AFIS
maintenance contracts; these unfavorable contracts will be re-negotiated as
they expire.
14
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESEARCH, DEVELOPMENT AND ENGINEERING
RD&E expenses decreased 14.9% to $5.1 million for the six months ended
September 30, 1997, which represents a $0.9 million decrease from the prior
year expense of $6.0 million. RD&E expenses, as a percentage of revenues,
decreased to 14.7% for the six months ended September 30, 1997 from 20.5% for
the six months ended September 30, 1996. The decrease in RD&E expense is due
primarily to a reduction in contract labor utilized during the current year.
In the prior year, significant contract labor expense was incurred to develop
criminal history system applications.
SELLING, GENERAL AND ADMINISTRATIVE
For the six months ended September 30, 1997, SG&A expenses increased to $8.7
million from $6.2 million for the period ended September 30, 1996. SG&A
expenses, as a percentage of revenues, equaled 25.3% for the six months ended
September 30, 1997 versus 21.1% for the same period of the previous year.
The increase in SG&A expenses is due primarily to increased personnel in
sales and marketing and to the establishment of a sales commission plan which
provides incentive payments based on the achievement of established goals.
Additionally, the Company has incurred higher marketing type expenses
supporting a larger company infrastructure.
AQUISITION RELATED EXPENSE
Acquisition expenses were associated with the TFP Inc., Boulder division and
SunRise Imaging Inc. acquisitions. The expenses included legal and
accounting fees associated with the pooling of interest transaction, employee
relocation costs, a facility closure and other non-capitalizeable acquisition
type costs.
IN-PROCESS RESEARCH & DEVELOPMENT EXPENSE
The in-process R & D expense of $5.9 million is the value assigned to SunRise
Imaging's developmental products. Goodwill was reduced by a corresponding
amount and the remaining goodwill value will be amortized over varying
periods, ranging from three to ten years.
OTHER EXPENSE / INCOME
Other income for the six month period ended September 30, 1997 equaled $0.2
million in comparison to $0.3 million expense for the same period of the
previous year. Other income for the period ended September 30, 1997 is
comprised of interest income from investments and notes receivable from
related parties.
PROVISION FOR INCOME TAXES
Income tax expense for the six month period ended September 30, 1997 equaled
$.1 million in comparison to expense of $.5 million for the six month period
ended September 30, 1996. The Company's current year tax provision is based
on a statutory rate of 40%, excluding in-process R & D and acquisition
related expenses, and reflects the impact of state and foreign taxes, as well
as the utilization of limited net operating loss carryforwards.
15
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PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SYSTEM BACKLOG
The Company measures its backlog of system revenues based on orders for which
contracts or purchase orders have been signed, but which have not been shipped
and for which revenues have not been recognized. At September 30, 1997 the
Company's system revenues backlog was approximately $36.3 million, compared to
$14.2 million at March 31, 1997. The significant increase in the Company's
backlog is due to the $22.6 million and $20.9 million in orders booked in the
first and second quarters of the fiscal year.
A significant portion of the Company's backlog as of September 30, 1997 is
expected to be shipped during the current fiscal year. However, certain orders
comprising backlog may set forth requirements for custom software development or
data file conversion which may require extensive work to be completed prior to
shipment. Any failure of the Company to meet an agreed upon schedule could
result in the cancellation of the related order. Furthermore, variations in the
size, complexity and delivery requirements of the customer order may result in
substantial fluctuations in backlog from period to period. Accordingly, the
Company believes that backlog cannot be considered a meaningful indicator of
future financial performance.
FINANCIAL CONDITION
Cash, cash equivalents, and short-term investments decreased from $8.4
million at March 31, 1997 to $4.6 million at September 30, 1997 substantially
due to the liquidation of $5.0 million in investments to assist with the
purchase of SunRise Imaging. Trade receivables rose $10.0 million from $23.5
million at March 31, 1997 to $33.5 million at September 30, 1997. The
Boulder division and Sunrise Imaging acquisitions contributed $3.6 million
of the increase, and TFP contributed approximately $3.0 million as a result
of the elimination of its receivables factoring. Total inventory levels
increased $1.7 million from $5.2 million at March 31, 1997 to $6.9 million at
September 30, 1997 due primarily to costs in excess of revenues associated
with percentage of completion accounting in the Company's Boulder division.
The $1.2 million increase in prepaid expenses and other current assets is
primarily attributable to the reclassification of a receivable balance.
The $0.6 million increase in the net balance of property, plant and equipment
was primarily the result of incremental balances resulting from the
acquisitions. Other assets increased $3.0 million, from $1.9 million as of
March 31, 1997 to $4.9 million as of September 30, 1997. The increase is due
to recognition of goodwill resulting from the purchase accounting for the
Boulder and SunRise Imaging acquisitions offset, in part, by certain
reclassifications.
Total current liabilities increased $11.1 million from $13.9 million as of
March 31, 1997 to $25.0 million as of September 30, 1997 Accounts payable
increased $2.3 million from $4.4 million as of March 31, 1997 to $6.7 million
as of September 30, 1997 due primarily to incremental balances resulting from
the Company's new subsidiaries. Accrued liabilities increased from $4.6
million as of March 31, 1997 to $8.7 million as of September 30, 1997 The
increase is substantially attributable to incremental balances assumed and
expense accruals incurred resulting from the acquisitions. Additionally, the
warranty provision increased, coincident with the higher level of system
shipments and the longer acceptance periods for certain significant systems.
Finally, an increase in certain payroll accruals and the accrual of the
Company's user's conference also contributed to the increase in accrued
liabilities. Deferred revenue increased $5.2 million from $3.9 million as of
March 31, 1997 to $9.0 million as of September 30, 1997. $2.5 million of the
increase represents the incremental balances as a result of the acquisitions.
The remaining balance is due to customer deposits on some large scale AFIS
orders. The $6.6 million increase in long-term debt is reflective of the
$5.0 million in financing used to acquire SunRise Imaging and the outstanding
balance on the Company's revolving line of credit.
16
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations through the cash provided by its
operations, short-term investments and the utilization of its revolving
credit line. The Company's operating activities used net cash of
approximately $.7 million for the six months ended September 30, 1997 due
primarily to increases in accounts receivable and inventories, offset by the
in-process research and development write-off associated with the Sunrise
Imaging acquisition. The Company's operating activities used cash of
approximately $7.0 million for the period ended June 30, 1996 as a result of
increases in accounts receivable, inventory and certain liabilities. The
Company's investing activities used cash of approximately $7.8 million for
the six months ended September 30, 1997, as a result of capital expenditures
of $.7 million, cash used to acquire the Boulder division and Sunrise Imaging
for $9.6 million, offset, in part, by the sale of short-term investments
which yielded approximately $2.5 million of cash. The Company's investing
activities provided net cash of approximately $0.6 million for the six months
ended September 30, 1996 due to proceeds received from a related party note
receivable. Financing activities generated net cash of approximately $7.3
million and $10.0 million for the six months ended September 30, 1997 and
September 30, 1996. For the current period, proceeds from long-term debt of
$6.5 million provided operating cash flow. For the period ended September
30, 1996, net debt repayments equaled $4.7 million while proceeds from the
Company's initial public offering provided $14.7 million in proceeds.
The Company believes that the cash generated from operations and short-term
investments as well as its credit facility, will be sufficient to meet its
cash requirements at least through the end of fiscal year 1998.
17
<PAGE>
PRINTRAK INTERNATIONAL INC.
PART II - OTHER INFORMATION
Item 2 - CHANGE IN SECURITIES AND USE OF PROCEEDS
----------------------------------------
(F) USE OF PROCEEDS
The Company effected a registration with the Securities and Exchange
Commission on Form S-1, Registration No. 333-04610 (the "Registration
Statement"), whereby the Company registered up to 2,500,000 shares of Common
Stock, including 500,000 shares to be offered by the selling stockholders
identified in the Registration Statement. The Registration Statement was
granted effectiveness on July 2, 1997 (the "IPO"). The price of the Company's
Common Stock was $8.00 per share, less underwriting discounts and commissions
of $.56 per share. On August 6, 1996, the underwriters of the Company's IPO
exercised their option to purchase an additional 121,000 shares of Common
Stock directly from the Company at a price of $8.00 per share, less
underwriting discounts and commissions of $.56 per share. The Company
received a total of net proceeds of $15.8 million, before deducting offering
expenses, from the sale of the Common Stock pursuant to the IPO and the
exercise of the over-allotment option.
The Company has previously filed several Forms S-R with the Securities and
Exchange Commission reporting the use of proceeds. The latest Form S-R, which
was filed on June 30, 1997, reported that the Company has used approximately
$8.8 million of the net proceeds from the IPO for repayment of indebtedness
and for working capital. The remaining net proceeds of the offering, equal to
approximately $7.0 million, were invested in short-term investment grade
money market instruments. In conjunction with the Company's acquisition of
SunRise Imaging on September 9, 1997, the Company used $5.0 of proceeds for
partial payment of the purchase price.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The annual meeting of stockholders was held on August 15, 1997. Of the
11,134,388 shares of the Company's common stock issued and outstanding and
entitled to vote at the meeting, there were present at the meeting, in person
or by proxy, the holders of 9,182,439 common shares, representing 82.61% of
the total number of shares entitled to vote at the meeting. This percentage
represents a quorum. The following actions were taken at the stockholders'
meeting:
Three proposals were presented and voted on at the stockholders' meeting.
Proposal One: Each of the six nominees to the Board of Directors was elected
for a one-year term by the stockholders. The following directors were
elected: R. Giles, J. Hardy, K. Simonds, C. Smith, B. White and A. Wong.
Proposal Two: The stockholders approved an amendment to the Company's ESPP
to increase the shares subject thereto to a total 350,000 shares. The voting
results were: For 9,140,094; Against 33,720; Abstain 8,625; Broker
Non-Vote 0.
Proposal Three: The appointment of Deloitte & Touche LLP as independent
auditors was ratified. The voting results were: For 9,173,019;
Against 5,400; Abstain 4,020; Broker Non-Vote 0.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Item 6(a)
2.1 Agreement and Plan of Merger dated August 29, 1997 among Registrant,
SunRise Acq. Corp., SunRise Imaging and the principal shareholders of
SunRise Imaging (incorporated by reference to Exhibit 2.1 of the
Registrant's Form 8-K filed on September 24, 1997)
27 Financial Data Schedule
(b) The Registrant filed the following Current Reports on Form 8-K during the
second quarter of the fiscal year 1998:
July 9, 1997 Registration of Kevin McDonnell , CFO and Director
of the Board
July 21, 1997 Pro forma financial statements relating to
acquisition of TFP Inc.
September 24, 1997 Acquisition of SunRise Imaging, a California
Corporation
18
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTRAK INTERNATIONAL INC.
(REGISTRANT)
November 14, 1997 /s/ RICHARD M. GILES
--------------------------------
Richard M. Giles
Chairman of the Board, Chief
Executive Officer, President and
acting Chief Financial Officer
(Principal Financial Officer)
19
