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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
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 Identification
incorporation or organization) 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. Yes /X/ 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. /X/
The aggregate market value of the Registrant's Common Stock held by
non-affiliates on May 28, 1999 (based upon the average of the high and low sales
prices of such stock on such date) was $30,540,008. As of May 28, 1999,
11,441,552 shares of the Registrant's common stock, par value $0.0001 per share,
were outstanding.
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PRINTRAK INTERNATIONAL INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
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") is a worldwide supplier of
integrated identification and information systems used in public safety
applications and civil applications such as national ID programs. In the public
safety market, Printrak's Digital Justice Solution-TM- provides networked
fingerprint, photo imaging, computer-aided dispatch, automated records
management and jail management systems. Printrak's civil systems prevent
identity fraud and provide the identification infrastructure for emerging
commercial fingerprint biometric applications. The Company's systems serve
approximately 700 national, state, county and municipal agencies in 36
countries.
The Company was originally formed in 1974 as a business unit of the
Navigation Systems division of Rockwell International. The business and
technology of the Company were acquired by Thomas De La Rue and Company Limited
in 1981, and the Company was incorporated in California in December 1984 as "De
La Rue Printrak, Inc." The Company was acquired by management in 1991 and was
renamed "Printrak International Incorporated." The Company was reincorporated in
Delaware in March 1996 under the name "Printrak International Inc."
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. The
business combination was accounted for by the pooling of interests method of
accounting. Founded in 1988, TFP is considered a premier supplier of digital
mugshot systems used by law enforcement, jail and correctional agencies. TFP's
software applications also include jail management systems.
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
the purchase method of accounting. The Boulder business unit provides
computer-aided dispatch systems and records management systems for law
enforcement and fire and emergency medical services agencies. As a result of the
transaction, the business unit operates as a division of the Company (the
"Boulder Division").
On September 9, 1997, the Company acquired SunRise Imaging ("SunRise"), a
California corporation, in a transaction accounted for under the purchase method
of accounting. As a result of the transaction, SunRise became a wholly-owned
subsidiary of the Company. SunRise is a leading developer and manufacturer of
high performance systems which digitize microfilm and microfiche records.
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
1999" refers to the 12 months ended March 31, 1999.
PRODUCTS
The following hardware and software products represent the Company's current
product offerings:
AUTOMATED FINGERPRINT IDENTIFICATION SYSTEMS. The Company's automated
fingerprint identification system ("AFIS") products represent a comprehensive,
fully integrated architecture for the capture and input of fingerprint images,
including image processing, search processing and overall database management.
Each AFIS system is comprised of a number of components, including: 1) tenprint
workstations which scan inked fingerprint cards and palmprints while performing
quality control, data descriptor entry and fingerprint search initiation. The
tenprint workstations also perform search verification and disposition; 2)
livescan stations, typically installed in a booking environment, to
electronically capture and transmit fingerprints, mugshots and arrest
information; 3) latent workstations which are used by latent fingerprint
examiners to capture, enhance, encode, search, verify and dispose latent prints
from a crime scene; 4) Capture! stations that capture fingerprint images using a
flatbed scanner, perform image quality
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assessment, and transmit fingerprint data; 5) ID stations, equipped with
single-finger live scanners, that electronically capture, process and transmit
fingerprint image data; 6) image processing technology that extracts the
searchable features from raw fingerprint image data; 7) scalable search
processing technology that matches the extracted features of the search
fingerprint against the agencies' fingerprint databases; 8) data storage and
retrieval systems which contain large databases of compressed fingerprint and
palmprint images as well as the searchable fingerprint feature data; 9) NIST
archive/server systems that store electronic fingerprint and descriptor data,
and which provide an open interface between the agency's Printrak AFIS system
and the AFIS systems of other agencies; and 10) Software products which allow an
agency to customize its workflow based on individual agency specifications.
Utilizing an individual's fingerprints, the Company's fully integrated AFIS
system gives agencies the ability to quickly and automatically associate the
individual with their previous criminal history data and also allows the agency
to check for outstanding warrants. This ability significantly increases the
efficiency of the investigation, booking, suspect identification, incarceration
and release functions.
In the public safety market, the Company's AFIS system gives agencies the
ability to quickly and automatically associate the individual with their
previous criminal history data and also allows the agency to check for
outstanding warrants. This ability significantly increases the efficiency of the
investigation, booking, suspect identification, incarceration and release
functions. In the civil market, the Company's AFIS systems allow agencies to
detect attempts at duplicate enrollment under different names. This prevents
individuals from obtaining duplicate benefits under different names, and allows
agencies to give immigration, voting and other rights only to qualified
individuals.
The Company's sixth generation system, the AFIS 2000 series, uses a UNIX
platform. The Series 7 AFIS is the Company's latest generation of products and
runs on the Microsoft NT platform.
DIGITAL PHOTO MUGSHOT. The Company's InstantImage mugshot product line
consists of the Multicapture product and the Investigative Search product.
Multicapture is typically used in the law enforcement booking environment to
digitally capture and store photo-images of mugshots, tattoos, scars and other
distinguishing marks. Investigative Search is the engine for searching criminal
suspects based on demographic or physical attributes. After identifying
potential suspects who match the criteria, the software electronically creates
and reviews photo lineups. This mugshot system increases an agency's overall
efficiency by automating photo taking, processing, storing, and viewing photo
lineups.
A typical mugshot system consists of various hardware and software
components including booking stations, which utilize high resolution video or
digital cameras for the capture of mugshots and viewing workstations for
searching the mugshot database and creating photo lineups. Additionally, the
systems are interfaced to data storage and retrieval systems that store the
compressed photographic images and searchable data. The range of InstantImage
mugshot installations encompasses stand-alone workstations to complex state-wide
networks where multiple agencies share mugshot information.
The digital photo mugshot system is fully integrated with the Company's
Livescan station product. A typical installation would utilize the livescan unit
to capture mugshot images, along with fingerprints and booking information. The
mugshots are then stored in the InstantImage system for searching, viewing, and
lineup creation at a viewing workstation.
COMPUTER AIDED DISPATCH. The Company's computer aided dispatch ("CAD")
application automates public safety agencies' call-taking and incident
dispatching process by managing service calls and the patrol units that are
assigned to each service incident. The Company's system provides public safety
agencies with a fully integrated and configurable computer aided dispatch system
allowing call-takers and dispatchers to quickly and effectively handle incident
information, thus increasing officer safety and the overall potential for saving
lives. The CAD application supports, not only law enforcement agencies, but also
fire and emergency medical service agencies.
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Because the CAD system provides mission critical information, the Company
utilizes fault tolerant servers. These high availability hardware platforms
enable the Company to provide continuous availability and performance to support
critical applications such as communications center operations 24 hours per day,
365 days a year. Additionally, the Company provides configurable software which
allows an agency to customize its workflow based on individual agency
specifications.
RECORDS MANAGEMENT. The Company's records management system ("RMS") manages
the recording, indexing, tracking, viewing and analyzing of data for law
enforcement, fire and emergency medical service agencies. The Law RMS provides
complete records functionality for a law enforcement agency handling every phase
of law enforcement activity from incident generation to assigning and tracking
cases through arrest and booking. The Fire RMS provides a comprehensive suite of
functionality for managing fire and emergency medical service activities. Both
the RMS and Fire RMS provide extensive functionality for capturing the data
required for local, state and national law and fire agency reporting. The
Company's law and fire records systems are fully integrated with the Company's
CAD product and operate on a Microsoft Windows NT platform.
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
information including past incarcerations, current offense, court status, and
prior institutional behavior. By providing jail administrators the tools to
identify potential problem inmates, house similar inmates together, and target
direct supervision toward those inmates who require it most, problems can be
minimized. The Jail Manager software also includes statistical inmate reporting
and calculates release dates.
DIGITIZATION PRODUCTS. The Company's SunRise Imaging division produces
microfilm scanners capable of scanning the three commonly used types of
microforms: roll film, microfiche and aperture cards. Targeted to satisfy the
conversion requirements of companies with large archival backfiles, the system
provides high-speed throughput, image enhancement capabilities and quality
control functionality which increases flexibility for microform scanning. The
system is comprised of proprietary imaging hardware and software. The
digitization software runs on a Microsoft Windows NT platform.
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 mugshot records, and the conversion of data from
existing databases on previous generation systems.
MAPPING. Printrak's mapping product manages location, address and other
relevant geofile data used by the CAD system to dispatch police, fire and
emergency medical units. It is also used in conjunction with CAD to provide a
graphical map display for dispatchers to use to keep track of their assigned
incidents. This display provides both a spatially accurate map combined with
user defined layers that allow for the designation of different jurisdictions,
beats and zones. Additionally, the interface between the CAD system and the
mapping product provides for the automatic placement of icons on the map that
corresponds with incidents recorded and tracked in CAD. When used in conjunction
with automated vehicle locator ("AVL"), the map also graphically displays the
locations and status of units in service.
SYSTEM MAINTENANCE. The Company typically warrants its systems for a period
of up to 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.
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COMPETITION
The market for law enforcement information systems is highly 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. A company named Cogent, also located in Southern
California, has also been a serious AFIS competitor.
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 market competitors including Unisys, TRW and
others. The Company competes in these markets on the basis of system
functionality, price and customer service.
In the digital photo mugshot market, the Company's principal competitors are
EPIC Solutions, Imageware, DDSI and Dynamic Imaging. A large number of minor
competitors are also present in the marketplace. The Company competes in the
digital photo mugshot market on the basis of system functionality, image
quality, ease of integration with other customer systems, price and customer
service.
The market for computer aided dispatch, records management and jail
management systems like the AFIS market, is highly competitive and involves
rapidly changing technology. The principal competitors in the CAD, RMS and jail
management market have been and continue to be Intergraph and Tiburon. A
significant number of secondary competitors are also present within the
marketplace. Each of the principal competitors has the expertise to provide
large scale, integrated CAD, RMS and jail management solutions. The nature of
the competition is centered on functionality, reliability, ability to interface
with the customer's mobile communication and in-vehicle systems, price and
customer service.
In the microfilm scanning market, the Company competes primarily with Mekel
at the high end of the market segment. Competitors in the lower priced segment
of the market, which SunRise does not generally compete against, consist
primarily of Fuji and Wicks & Wilson. SunRise competes in this marketplace based
upon throughput, image quality and flexibility to use multiple types of
microfilm.
Printrak has several competitors that offer some elements of enterprise-wide
computing solutions for public safety agencies. However, Printrak's Digital
Justice Solution-TM- currently offers the most comprehensive solution, which may
include any or all of the following: AFIS, live scan, CAD, RMS, jail management,
mugshot and microfilm scanners. Certain competitors such as Tiberon and
Intergraph do provide solutions which include both CAD and RMS technologies.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company currently holds five patents and has two patent applications
pending in the United States, holds three patents in Europe and five in Canada.
Although the Company has implemented these protective measures, 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 Company's patents are or will be sufficiently broad to
protect the Company's technology. There can be no assurance that additional U.S.
or foreign patents will issue. 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. Further,
there can be no assurance that others will not independently develop similar
products or duplicate the Company's products.
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RESEARCH AND PRODUCT DEVELOPMENT
The Company considers research, development and engineering to be a vital
part of its operations 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, 1998 and 1999,
the Company invested 16.6%, 15.3% and 8.0%, respectively, of its revenues in
research, development and engineering. See "Certain Relationships and Related
Transactions--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's subsidiaries, TFP and SunRise, manufactured mugshot and digital
scanning systems through fiscal year 1998, however, with the integration of TFP
and SunRise into the Company's operations in Anaheim, this manufacturing is
being outsourced to the same vendor from which the Company procures its AFIS
assemblies. The Company's CAD product is required to be fault tolerant and, as
such, utilizes Tandem hardware which is purchased directly from the
manufacturer.
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 that have had a major impact on its business.
As a turnkey supplier of digital justice solutions, the Company also
provides file conversion services for its AFIS product line which allows 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. The Company's
computer aided dispatch application requires significant data mapping of the
geographic points included within an agency's service jurisdiction. This data
mapping is performed by a third party in Boulder, Colorado, and to date, the
Company has not experienced any delays in the performance of service by this
subcontractor.
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 the Company's AFIS systems five days
per week, eight hours per day, during normal working hours. The Company's
CAD/RMS and mugshot products are supported via on-site maintenance service or
on-call phone service, depending on the requirements of the customer's
maintenance agreement. Telephone support is provided for the Company's AFIS,
mugshot, and CAD/RMS products 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. The
Company'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, the Boulder, Colorado
facility or in regional offices around the world.
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 AFIS,
mugshot and CAD/RMS systems include a 12 month warranty which includes full
support and maintenance. The Company provides a 90 day warranty with the sale of
a SunRise
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Imaging scanner. Individual components within any of the Company's product lines
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 for which revenues have not
been recognized. In those instances where revenue is recognized on a percentage
of completion basis, the Company includes in backlog contract revenue not
recognized at the period end. The Company typically delivers its products within
six to nine months after receiving an order, however, in some instances,
products are provided on a shorter delivery schedule, and occasionally, more
time is required. As of March 31, 1999, the Company's system revenue backlog was
approximately $105.3 million, compared to $29.7 million as of March 31, 1998.
Orders comprising the Company's backlog may include requirements for custom
software development or file conversion that 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 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.
EMPLOYEES
As of March 31, 1999, the Company employed 461 people on a full-time basis,
425 domestically and 36 internationally. Of this total, 99 were in research,
development and engineering, 155 in customer support, 87 in assembly, materials
and file conversion services, 65 in sales and marketing, and 55 in finance,
information technology and administration. Printrak's success is highly
dependent on its ability to attract and retain qualified employees. Competition
for employees is increasingly intense in the software industry, and the Company
believes this competition will continue. 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:
LENGTHY SALES AND COLLECTION CYCLE
The sale of our products is often subject to delays associated with the
lengthy approval processes that typically accompany large capital expenditures.
Our 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 our products, all of
which involve a significant capital commitment as well as significant future
support costs. Our systems therefore often have a lengthy sales cycle while the
customer evaluates and receives approvals for the purchase of our products,
while existing workflows are augmented so as to properly assimilate our system,
and while the system is configured and shipped. Typically, the evaluation and
execution of a customer contract may take a full year. Another six to nine
months elapse while the system is configured, professional services are
performed and the customer site is prepared. As such, it is not uncommon for the
sales cycle to be two years. During this time, we expend substantial resources
yet may receive no associated revenue. Any significant failure by us to execute
a contract after expending such effort and funds could have a material adverse
effect on our business, operating results and financial condition.
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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, portions 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, our
collection cycle is often quite lengthy. As such, we expend substantial
resources but may not receive payment from the customer until the completion of
a substantial portion of the contract. Any significant failure by us to perform
to the requirements of a specific contract could have a material adverse effect
on our business, operating results and financial condition.
DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATION
In any given fiscal year, our revenues have principally consisted, and may
continue to consist, of large orders from a limited number of customers. While
the individual customer may vary from period to period, we are still dependent
upon large orders for a significant portion of our total system revenues. During
fiscal years 1999 and 1998, no sales exceeding 10% of total revenues existed.
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 13.7%, and $6.9 million, or 10.5%, respectively, of our total revenues. There
can be no assurance that we will continue to obtain such large orders on a
consistent basis, and as such, our inability to obtain sufficient large orders
could have a material adverse effect on our business, operating results and
financial condition. Moreover, the timing and shipment of such orders may cause
our operating results in any given quarter to differ from projections of
securities analysts which could adversely affect the trading price of our Common
Stock.
DEPENDENCE ON CAPITAL SPENDING BY PUBLIC AGENCIES
Substantially all of the our revenues are derived from the sale and
maintenance of products delivered to domestic and foreign governmental agencies.
The decision to purchase an AFIS, CAD, RMS, mugshot or jail management system
generally involves a significant commitment of capital and frequent delays are
often associated with significant capital expenditures. Our future performance
is directly dependent upon the capital expenditure budgets of our customers and
the continued demand by such customers for our products. Many domestic and
foreign governmental agencies have experienced budget deficits that have also
led to significant reductions in capital expenditures. Our 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 our
business, operating results and financial condition.
RISKS ASSOCIATED WITH EXPANSION INTO ADDITIONAL MARKETS; RELIANCE ON TEAMING
ARRANGEMENTS
We believe that our future performance is, in part, dependent upon our
ability to successfully market AFIS technology for use outside of the law
enforcement market. These markets 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. Furthermore, the size of these contracts, when awarded, is
significantly larger than contracts which we typically fulfill and often require
multiple contractors. The requirements for a national ID system, for example,
incorporate AFIS technology, but may also incorporate other technologies
provided by other parties. In order to successfully pursue civil and commercial
applications, we have 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. Additionally, there can be no
assurance regarding the performance of other third parties associated with such
large scale implementations, and we have no control over this aspect of any
installation.
Although we have successfully performed on some of the largest AFIS
installations in the world, the applications associated with national ID
programs or other civil and commercial applications, typically are
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much larger. Although we are confident that we can successfully implement our
technology in these markets, there can be no assurance that we will be
successful.
RISKS ASSOCIATED WITH ACQUISITIONS
An important element of our strategy has been to expand our operations by
acquiring companies with complementary product offerings in order to augment
market coverage and strengthen technological capabilities. We have acquired
companies in the past and we may make additional acquisitions of businesses,
products or technologies in the future. These acquisitions have, and may
continue to, result in dilutive issuance of securities, the incurrence of debt
and amortization expense related to goodwill or other intangible assets. Any of
these factors could adversely affect our business, operating results and
financial condition.
Acquisitions and their assimilation into our operations have presented and
may continue to present us with numerous challenges. These challenges may
include, but are not limited to, assimilating the technologies and products of
acquired companies, locating qualified resources and incorporating separate
geographic operations into the consolidated company. These challenges absorb and
may continue to absorb significant management attention that would otherwise be
available to the ongoing development of our core business. Moreover, there can
be no assurance that the anticipated benefits of any acquisition, upon complete
integration, will ultimately be realized. If our management does not effectively
respond to these challenges, our business, operating results and financial
condition could be adversely impacted.
YEAR 2000 COMPLIANCE
Many currently installed information technology systems or IT systems, such
as computer systems and software products, as well as non-IT systems that are
embedded, are coded to accept only two digit entries in the date code field.
These date code fields were not designed to correctly process dates after
December 31, 1999; therefore, these date code fields will need to accept four
digit entries, or be modified in some fashion, to distinguish 21st century dates
from 20th century dates. As a result, in less than seven months, computer
systems and software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. We believe that certain of our internal
systems are not Year 2000 compliant and we are currently in the process of
purchasing upgrades or transitioning to systems which our vendors have
represented as being Year 2000 compliant.
We have assessed the impact of such "Year 2000" issues on our products, our
internal IT and non-IT systems, as well as on our customers, suppliers and
service providers. We have determined that certain of our internal IT and non-IT
systems are not Year 2000 compliant and we are currently in the process of
purchasing upgrades or transitioning to systems which our vendors have
represented as being Year 2000 compliant. We believe that with modifications and
conversions, the Year 2000 issue can be managed and the associated risks
mitigated. We believe that our internal critical systems are currently 2000
compliant with the remaining modifications and conversions to be completed by
September 30, 1999. With regard to our products, we believe that the current
versions of all products are Year 2000 compliant. However, certain older product
versions are not Year 2000 compliant. We have notified our customers of
potential Year 2000 compliance problems and have offered such customers the
opportunity to purchase upgrades. For customers with current systems under
maintenance agreements, we intend to offer Year 2000 upgrades as part of the
maintenance process. Customers not under maintenance agreements or with older
generation systems will be offered the opportunity to purchase upgrades. We do
not anticipate a material cost to upgrading our products to be Year 2000
compliant. However, there can be no guarantee that Year 2000 issues will not
have a material impact on our business, operating results and financial
condition.
We are unable to control whether our suppliers and service providers will be
Year 2000 compliant. However, we have initiated communications with our
significant vendors to determine the extent to which our operations may be
vulnerable to such parties' failure to resolve their own Year 2000 issues. Our
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operations may be affected to the extent that our vendors are unable to provide
services or ship products. Where practicable, we will assess and attempt to
mitigate our risks with respect to failure of those entities to be Year 2000
ready. We have not received responses from all of our significant vendors and
thus the effect, if any, on our results of operations from the failure of such
parties to be Year 2000 ready cannot be estimated. The inability of these third
parties to remediate their Year 2000 problems could have a material adverse
effect on our business, operating results and financial condition.
Although we expect our internal systems to be Year 2000 compliant as
described above, we have prepared a contingency plan that specifies what we plan
to do if our significant vendors are not Year 2000 compliant in a timely manner.
Even if these plans are put in place, there can be no assurance that such plans
will be sufficient to address any third party failures or that unresolved or
undetected internal and external Year 2000 issues will not have a material
adverse effect on our business, operating results and financial condition.
Should we not be completely successful in mitigating internal and external
Year 2000 risks, the result could be a system failure or miscalculations causing
disruptions of operations at our facilities or those of our vendors and
suppliers, including among other things, a temporary inability to process
transactions, manufacture products, send invoices or engage in similar normal
business activities. We believe that under a worse case scenario, we could
continue the majority of our normal business activities on a manual basis.
While it is difficult to quantify the total cost to us of the Year 2000
compliance activities, our best estimate of expenditures to date is between
$250,000-$350,000. The total remaining cost is estimated to be approximately
$150,000. We are expensing as incurred all costs related to the assessment and
remediation of the Year 2000 issue. These costs are being funded through
operating cash flows. Notwithstanding the foregoing, there can be no assurances
(a) that the representations provided by its third party vendors with respect to
Year 2000 compliance will be accurate, or (b) that we will have any recourse
against such vendors if the representations prove to be inaccurate. Furthermore,
there can be no assurances that Year 2000-related failure caused by third
parties, such as utility providers, transportation companies or others, will not
have a material adverse effect on us. There can be no guarantee that Year 2000
issues will not have a material impact on our business, operating results and
financial condition. We anticipate that our internal systems will be Year 2000
compliant by September 30, 1999.
OTHER MATTERS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS No.
133), which we are required to adopt effective in our fiscal year 2000. SFAS No.
133 will require us to record all derivatives on the balance sheet at fair
value. We do not currently engage in hedging activities but will continue to
evaluate the effect of adopting SFAS No. 133. We will adopt SFAS No. 133 in our
fiscal year 2000.
ITEM 2. PROPERTIES
The Company leases an approximately 88,000 square foot facility in Anaheim,
California from Kilroy Realty, L.P. This building is used as the Company's
headquarters and includes administration, engineering and customer service and
manufacturing facilities.
The Company leases an approximately 6,700 square foot facility in Fremont,
California from Aetna Life Insurance Company. Prior to the restructuring of the
Company's subsidiaries and the relocation of SunRise's operations to Anaheim,
California, the facility was used as SunRise's principal place of business. The
Company is actively pursuing a subtenant to sublease the premises through the
remaining term of the lease. Pursuant to the terms of the lease, the Company
pays $12,605 per month, subject to periodic adjustments. The term of the lease
expires April 2002.
11
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The Company leases an approximately 21,800 square foot facility in Boulder,
Colorado from Lookout, LLC for use by the Boulder Division. Pursuant to the
terms of the lease, the Company pays $18,559 per month, subject to periodic
adjustments. The term of the lease expires in November 2002.
The Company leases an approximately 24,000 square foot facility in Irvine,
California from The Irvine Company for use by sales, marketing and R&D. Pursuant
to the terms of the lease, the Company pays $36,480 per month, subject to
periodic adjustments. The term of the lease expires in April 2006.
Additionally, the Company leases sales office space in Washington D.C., and
Greenville, South Carolina along with offices in Staines, England and in
Queensland, Australia which are used for international sales and customer
support services.
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 March 31, 1997 through March 31, 1999 (as reported on the Nasdaq National
Market). The last reported closing price of the Common Stock on the Nasdaq
National Market on May 28, 1999 was $6.75.
FISCAL QUARTER ENDED:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
March 31, 1997............................................................. $ 12.75 $ 8.00
June 30, 1997.............................................................. 9.63 8.63
September 30, 1997......................................................... 11.75 11.13
December 31, 1997.......................................................... 10.88 10.00
March 31, 1998............................................................. 10.50 8.00
June 30, 1998.............................................................. 8.25 5.13
September 30, 1998......................................................... 6.25 4.13
December 31, 1998.......................................................... 8.19 4.50
March 31, 1999............................................................. 8.75 6.25
</TABLE>
As of May 28, 1999, there were 117 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 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
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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 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, 1999, and the balance sheet data at March
31, 1998 and 1999, are derived from the audited consolidated financial
statements and notes thereto, 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
13
<PAGE>
"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.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- ---------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
System.................................................. $ 22,036 $ 41,400 $ 54,728 $ 58,742 $ 71,195
Maintenance............................................. 9,607 10,667 10,855 13,134 15,238
--------- --------- --------- ---------- ---------
Total revenues.......................................... 31,643 52,067 65,583 71,876 86,433
Cost of revenues.......................................... 18,215 29,782 34,143 45,852 50,425
--------- --------- --------- ---------- ---------
Gross profit.............................................. 13,428 22,285 31,440 26,024 36,008
Operating expenses:
Research, development and engineering................... 4,867 9,274 10,859 11,002 6,936
Selling, general and administrative..................... 9,353 12,283 13,861 21,841 21,760
In process research and development..................... 5,900
Merger related expenses................................. 874
Restructuring costs..................................... 987
--------- --------- --------- ---------- ---------
Total operating expenses................................ 14,220 21,557 24,720 40,604 28,696
Operating income (loss)................................... (792) 728 6,720 (14,580) 7,312
Other income (expense), net............................... 1,315 848 53 185 (156)
--------- --------- --------- ---------- ---------
Income (loss) before provision for income taxes........... 523 1,576 6,773 (14,395) 7,156
Provision (benefit) for income taxes...................... 221 386 2,141 95 (4,152)
--------- --------- --------- ---------- ---------
Net income (loss)......................................... $ 302 $ 1,190 $ 4,632 $ (14,490) $ 11,308
--------- --------- --------- ---------- ---------
--------- --------- --------- ---------- ---------
Net income (loss) per share:
Basic................................................... $ 0.14 $ 0.44 $ (1.30) $ 1.00
Diluted................................................. $ 0.13 $ 0.42 $ (1.30) $ .96
Weighted average common and common equivalent shares
outstanding:
Basic................................................... 8,620 10,425 11,151 11,338
Diluted................................................. 9,085 10,963 11,151 11,781
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 1,272 $ 3,625 $ 8,431 $ 4,864 $ 8,557
Working capital........................................... 5,475 10,130 24,842 18,315 21,216
Total assets.............................................. 29,964 34,657 49,558 58,595 65,302
Long-term liabilities..................................... 7,834 5,742 1,683 10,960 180
Total stockholders' equity................................ 11,931 14,041 33,997 20,552 33,001
</TABLE>
- ------------------------
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 we intend 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 our technical and manufacturing capabilities, (ii) anticipated competition,
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<PAGE>
(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 our markets will
continue to grow, that our products will remain accepted within their respective
markets and will not be replaced by new technology, that competitive conditions
within our markets will not change materially or adversely, that we will retain
key technical and management personnel, that our forecasts will accurately
anticipate market demand, and that there will be no material adverse change in
our 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 our control. In
addition, our business and operations 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 us or any other party that the objectives or plans will be
achieved.
The following is management's discussion and analysis of certain significant
factors which have affected our earnings and financial position during the
period included in the accompanying consolidated financial statements. This
discussion compares the year ended March 31, 1999 with the year ended March 31,
1998 and the year ended March 31, 1998 is compared against the year ended March
31, 1997. This discussion should be read in conjunction with the consolidated
financial statements and associated notes to the financial statements.
FISCAL YEARS ENDED MARCH 31, 1999 AND 1998
TOTAL REVENUES. Our total revenues are comprised of system revenues, which
include products, file conversion, data mapping, system installations and
warranty/maintenance revenues related to hardware and software support.
Total revenues increased 20.3% to $86.4 million for the year ended March 31,
1999, in comparison to revenues of $71.9 million for the year ended March 31,
1998. The overall increase in revenues is primarily attributable to a full year
of revenue from the computer aided dispatch, photo imaging and digital scanning
device product lines related to our fiscal 1998 acquisitions. In addition, the
new Civil ID Argentina contract contributed $5.6 million in system revenue.
These increases were partially offset by a reduction in revenues from the
AFIS division during the current year. The reduction is primarily due to the
timing of completion of contract elements which drive revenue recognition. In
addition, the sale of mugshot systems declined from the prior year as we
transitioned our sales efforts from smaller scale to larger scale contracts.
Of our total current year revenues of $86.4 million, system revenues
comprised $71.2 million with maintenance revenues contributing the remaining
$15.2 million. For fiscal year 1998, system revenues equaled $58.8 million while
maintenance revenues equaled $13.1 million. The increase in maintenance revenues
of $2.1 million from the prior year is primarily due to the overall expansion of
our customer base over the prior year.
COST OF REVENUES. Cost of revenues primarily consists of purchased
materials procured for use in the assembly of our products, manufacturing or
assembly labor and overhead, software development costs specific to individual
contracts, system integration costs, file conversion costs and data mapping
costs, as well as maintenance expenses and estimated costs to complete systems
installations.
System margin for the last three years was 44.7%, 37.8% and 48.6%,
respectively. Gross margin for the prior year of 37.8% was unfavorably impacted
by the lower yields from the Boulder division, which
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<PAGE>
included numerous low margin contracts, acquired from SCC. Also included in the
prior year cost of sales is approximately $882,000 of expenses associated with
restructuring of TFP and SunRise into the Company's Anaheim operations. SunRise
was consolidated into the Anaheim facility.
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 decreased 37.0% to $6.9 million for the year ended March 31,
1999, compared to $11.0 million for the same period of the previous year. RD&E
expenses, as a percentage of revenue, decreased to 8.0% for the year ended March
31, 1999 from 15.3% for the year ended March 31, 1998. The $4.1 million decrease
is primarily the result of an increased requirement of engineering resources for
certain revenue-producing contracts on AFIS and the newly acquired product line.
This was due to an increase in (i) the "customization" portion of the contracts
and (ii) an increase in overall contract activity, in particular the $45 million
Argentina contract, the Company's first significant contract in the AFIS civil
market place. The costs are then classified as cost of revenues. We are actively
recruiting to backfill the open RD&E positions.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
(SG&A) expense consists principally of compensation paid to sales, marketing and
administrative personnel, commissions paid to sales personnel, professional
service fees, travel and related expenses and other marketing expenses.
For the fiscal year ended March 31, 1999, SG&A expenses remained consistent
from fiscal year 1998 at $21.8 million. As a percentage of revenue, SG&A
expenses were 25.2%, down from 30.4% in the prior year.
Also included within SG&A for the prior year are $1.1 million of expenses
associated with the restructuring of the operations of TFP and SunRise to reduce
duplication of resources. These costs are primarily comprised of relocation and
retention bonuses for certain employees, costs of relocating TFP and SunRise
production facilities, and additional bad debt reserves due to employee
transitions and changes in the customer base.
IN PROCESS RESEARCH AND DEVELOPMENT EXPENSE. In the prior year, we incurred
a $5.9 million charge related to in process research and development for the
SunRise acquisition. We estimated that the cost to complete the technology
projects would aggregate $1.1 million and would be incurred over a one year
period. We incurred $1.0 million of research and development expenses related to
these technology projects during the year ended March 31, 1999. We estimate that
these projects are 100% complete at March 31, 1999.
OTHER INCOME (EXPENSE), NET. Other expense equaled $156,000 in the current
year and was primarily comprised of interest expense of $540,000, offset, in
part, by interest income of approximately $347,000. In the previous year, other
income totaled $185,000 and was primarily comprised of interest income of
approximately $629,000, offset, in part, by interest expense of $467,000 and
foreign currency losses of $136,000.
PROVISION/BENEFIT FOR INCOME TAXES. Income tax benefit for the year ended
March 31, 1999 equaled $4.2 million, versus an expense of $95,000 for the year
ended March 31, 1998. Our current year tax benefit reflects the reversal of the
valuation allowance of $6.2 million against our net deferred tax asset.
Therefore, realization of the net deferred tax assets was determined by
management to be more likely than not based on current and projected future
taxable income.
We evaluate a variety of factors in determining the amount of deferred
income tax assets to be recognized pursuant to SFAS No. 109, "Accounting for
Income Taxes". As a result of numerous factors, including, but not limited to
our earnings history, existing contracts, sales backlog, the existence of
taxable
16
<PAGE>
temporary differences, and near-term earnings expectations, we believe that our
net deferred tax asset is more likely than not to be realized, and in the third
quarter of 1999, reduced or eliminated our deferred tax valuation allowance of
$6.2 million. Although realization of the deferred tax assets is not assured, we
believe that it is more likely than not that all of the deferred tax assets will
be realized.
FISCAL YEARS ENDED MARCH 31, 1998 AND 1997
TOTAL REVENUES. Total revenues increased 9.6% to $71.9 million for the year
ended March 31, 1998, in comparison to revenues of $65.6 million for the year
ended March 31, 1997. The overall increase in revenues is entirely attributable
to our acquisitions during the fiscal year. Subsequent to completing the
acquisition of the CAD/RMS division of SCC in July 1997, the Boulder Division
contributed $8.2 million of total revenue while SunRise added $3.9 million in
total revenues for the period of September 9, 1997 (date of acquisition) through
March 31, 1998. In addition, TFP contributed $10.3 million in total revenues, a
52.6% increase over prior year revenues of $6.7 million. This increase is
representative of a significant increase in mugshot installations to existing
AFIS customers, as well as an expanding of TFP's overall customer base.
These increases were partially offset by a reduction in revenues from the
AFIS division during the current year. The reduction is primarily due to
revenues in fiscal 1997 being impacted by the sale of a large document storage
system for approximately $8.5 million while no similar systems were sold in
fiscal 1998. Revenues from core AFIS systems remained consistent between fiscal
1997 and 1998.
Of total current year revenues of $71.9 million, system revenues comprised
$58.8 million with maintenance revenues contributing the remaining $13.1
million. For fiscal year 1997, system revenues equaled $54.7 million while
maintenance revenues equaled $10.9 million. The increase in maintenance revenues
of $2.2 million from the prior year is primarily due to our increased
maintenance base due to acquisitions. The Boulder Division and TFP contributed
incremental maintenance revenue of $1.3 million and $0.8 million, respectively.
Anaheim's maintenance revenues of $9.5 million were generally consistent with
previous year maintenance revenues of $9.7 million.
COST OF REVENUES. Overall gross profit decreased to $26.0 million for the
year ended March 31, 1998, down from $31.4 million for the year ended March 31,
1997. As a percentage of sales, gross margin for fiscal year 1998 declined to
36.2% from 47.9% for fiscal year 1997. The gross profit for system revenues
decreased $4.4 million to $22.2 million for the current year while the prior
year's system gross profit equaled $26.6 million. System margin as a percentage
of sales declined as well, approximating 37.8% for the year ended March 31,
1998, down from 48.6% for the year ended March 31, 1997. Maintenance revenue
gross profit equaled $3.8 million for the current year, versus a gross profit of
$4.8 million for the previous fiscal year. As a percentage of sales, gross
profit on maintenance revenue approximated 29.1% for the year ended March 31,
1998, as compared to 44.4% for the year ended March 31, 1997.
The decline in overall system margins is partially attributable to the
Boulder Division's contracts yielding lower margins than typical AFIS contracts.
This was due to numerous low margin contracts acquired from SCC which we
expended significant resources to complete. Additionally, margins in the Boulder
Division are inherently lower than in the rest of the Company since a
significant proportion of sales relate to the delivery of special fault tolerant
equipment the gross margin on which is much less than that of hardware sold with
AFIS systems and since the cost of engineering in the Boulder Division contracts
is generally contract specific and therefore is charged to cost of revenues
rather than research, development and engineering expenses. Also included within
system cost of sales are approximately $882,000 of expenses associated with the
restructuring of TFP and SunRise into the Company's Anaheim operations.
Additionally, we incurred higher than estimated costs in completing system
installations.
The decline in maintenance gross margin is partially attributable to TFP and
the Boulder Division's cost in maintaining certain systems for which we have not
yet received a maintenance contract from the customer. This service was
performed to encourage all customers to assign their contracts to us; however,
17
<PAGE>
in some instances, costs were incurred without receiving a maintenance contract
during this transition period. The decrease in margin for Anaheim is
attributable to an increase in fixed maintenance support costs to support new
contracts which were still under warranty in fiscal 1998 and without a
corresponding increase in the price of existing maintenance contracts.
RESEARCH, DEVELOPMENT AND ENGINEERING. RD&E expenses increased 1.3% to
$11.0 for the year ended March 31, 1998, up from $10.9 million for the same
period of the previous year. RD&E expenses, as a percentage of revenue,
decreased to 15.3% for the year ended March 31, 1998 from 16.6% for the year
ended March 31, 1997. One factor in the decline of RD&E expenses, as a
percentage of revenue, is that the Boulder Division's investment in engineering
expenses is more typically contract specific, and as such, is classified as cost
of sales which lowers both the overall RD&E expenses, as a percentage of
revenue, and lowers our overall gross margin.
Included within current year RD&E expense are $249,000 of expenses
associated with the restructuring of the engineering operations of SunRise and
TFP into our corporate engineering organization. We experienced a decrease in
contract labor expense in comparison to prior year as a reduced number of
outside contractors were utilized. In the previous year, we had used significant
contract labor to develop our document storage. This software application is now
part of the AFIS family of products.
SELLING, GENERAL AND ADMINISTRATIVE. For the year ended March 31, 1998,
SG&A expenses increased to $21.8 million for fiscal year 1998, up from $13.9
million for fiscal year 1997. This represented an increase of $8.0 million or
57.6%. As a percentage of revenue, SG&A expenses approximated 30.4%, up from
21.1% in the prior year. Approximately $2.0 million of the increase was
attributable to higher labor costs associated with additional personnel
resulting primarily from our acquisitions, as well as the implementation of a
sales commission plan that resulted in incremental expense of approximately $1.0
million. Travel and marketing expenses also increased approximately $0.8 million
due to the acquisitions. Furthermore, during the year, approximately $0.5
million of international travel expense was incurred as we invested significant
resources in marketing its civil applications for AFIS technology. Professional
fees and insurance costs also incrementally increased due to our three
acquisitions during fiscal year 1998.
Also included within SG&A are $1.1 million of expenses associated with the
restructuring of the operations of TFP and SunRise to reduce duplication of
resources. These costs are primarily comprised of relocation and retention
bonuses for certain employees, costs of relocating TFP and SunRise production
facilities, and additional bad debt reserves due to employee transitions and
changes in the customer base.
IN-PROCESS RESEARCH & DEVELOPMENT EXPENSE. The in-process research and
development expense of $5.9 million was due to the allocation of a portion of
the purchase price to technology acquired related to the SunRise acquisition.
The purchase price was allocated based on management's estimates and projections
of future cash flows using the discounted cash flow valuation method.
MERGER EXPENSE. Merger expenses of $0.9 million were associated with the
TFP Inc. acquisition. The expenses primarily consisted of investment banking,
legal and accounting fees associated with the pooling of interests transaction.
RESTRUCTURING COSTS. The restructuring expense of $1.0 million consists of
expenditures for the termination of SunRise and TFP personnel, losses on the
disposal of fixed assets and the estimated loss associated with the lease
termination of SunRise's Fremont facility and TFP's Greenville facility. The
restructuring was completed during fiscal 1999.
OTHER INCOME, NET. Other income equaled $185,000 in the current year and
was primarily comprised of interest income of approximately $629,000, offset, in
part, by interest expense of $467,000 and foreign currency losses of $136,000.
In the previous year, other income totaled $53,000 and was principally
associated with interest income of $364,000, interest expense of $450,000 and
certain miscellaneous income items.
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PROVISION FOR INCOME TAXES. Income tax expense for the year ended March 31,
1998 equaled $95,000, versus $2.1 million for the year ended March 31, 1997. The
effective tax rate differs from the statutory rate principally due to the
nondeductible in-process research and development expense and an increase in the
valuation allowance on deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
We finance our operations through the cash provided by our operations and
the utilization of our revolving credit line. Our operating activities provided
cash of approximately $15.9 million for the year ended March 31, 1999, primarily
through net earnings before deferred tax adjustment and non cash depreciation
and amortization that were offset by other changes in working capital. Our
operating activities used net cash of approximately $3.6 million for the year
ended March 31, 1998, primarily as a result of the cash portion of the net loss
and increases in accounts receivable, inventories and prepaid expenses, offset
by cash generated from increases in accrued liabilities and deferred revenues.
Our investing activities used net cash of approximately $45,000 for fiscal
year 1999, due primarily to capital expenditures of $1.7 million offset by the
sale of short term investments for $1.1 million and the collection of a note
receivable for $0.5 million. For fiscal year 1998, our investing activities used
net cash of approximately $7.7 million for fiscal year 1998, due to capital
expenditures of $1.5 million and business acquisitions of $9.6 million offset by
the proceeds received from the sale of short term investments of $3.4 million.
The $9.6 million cash used for business acquisitions is related to the
acquisition of the CAD/ RMS division of SCC Communications and the acquisition
of SunRise Imaging, net of cash received.
Financing activities used net cash of approximately $11.1 million for the
year ended March 31, 1999 mainly due to the paydown of our revolving credit
line. We collected approximately $0.6 million from the exercise of stock options
and employees' participation in the employee stock purchase plan. Net cash
provided of approximately $11.2 million for the year ended March 31, 1998 was a
result of our increased use of the revolving credit facility, and net borrowings
exceeded repayments by $10.2 million. Furthermore, we collected approximately
$1.0 million from the exercise of stock options and employees' participation in
the employee stock purchase plan.
On July 7, 1998, we received a written commitment letter from our bank to
refinance our debt into a $15.0 million revolving credit facility, expiring in
July 1999 and a $4.0 million term loan payable in quarterly installments
beginning November 1, 1998 and maturing February 1, 2001. During fiscal 1999 we
repaid the outstanding principal balance on our $4.0 million term loan and
extended our $15.0 million revolving credit line facility to January 4, 2000.
The revolving line of credit agreement contains certain restrictive covenants,
which restrict our ability to pay dividends and requires us to maintain minimum
tangible net worth and certain other financial ratios. As of March 31, 1999 we
were in compliance with these covenants as amended. We believe that cash flow
from operations and the revolving credit facility will be sufficient to meet
cash needs for working capital and capital expenditures for at least the next 12
months.
EUROPEAN MONETARY UNION
Within Europe, the European Economic and Monetary Union (EMU) introduced a
new currency, the euro, on January 1, 1999. The new currency is in response to
the EMU's policy of economic convergence to harmonize trade policy, eliminate
business costs associated with currency exchange and to promote the free flow of
capital, goods and services.
On January 1, 1999, the participating countries adopted the euro as their
local currency, initially available for currency trading on currency exchanges
and non-cash transactions such as banking. The existing local currencies, or
legacy currencies, will remain legal tender through January 1, 2002. Beginning
on January 1, 2002, euro-denominated bills and coins will be issued for cash
transactions. For a period of
19
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up to six months from this date, both legacy currencies and the euro will be
legal tender. On or before July 1, 2002, the participating countries will
withdraw all legacy currencies and exclusively use the euro.
Our transactions are recorded in U.S. Dollars and we do not currently
anticipate future transactions being recorded in the euro. Based on the lack of
transactions recorded in the euro, we do not believe that the euro will have a
material effect on our financial position, results of operations or cash flows.
In addition, we have not incurred and do not expect to incur any significant
costs from the continued implementation of the euro, including any currency
risk, which could materially affect our business, financial condition or results
of operations.
The Company has not experienced any significant operational disruptions to
date and does not currently expect the continued implementation of the euro to
cause any significant operational disruptions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to foreign currency exchange rate fluctuations in the normal
course of business. Our main area of risk lies in contracts negotiated in
foreign currencies other than US dollars. Depending on the payment terms of the
contract we may be subject to currency rate fluctuations. We have had limited
exposure in this area due to the small number of contracts negotiated in foreign
currencies. However, there can be no assurance that this activity will not
increase which in turn may affect results of operations and financial position.
We have not been investing in marketable securities, but have been earning
income on an interest bearing account through our bank. Changes in interest
rates may affect the return on these investments in future periods.
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.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required for 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 1999 Annual Meeting of Stockholders to be
held on August 25, 1999, 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 1999 Annual
Meeting of Stockholders to be held on August 25, 1999, to be filed with the
Securities and Exchange Commission.
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 1999,
Annual Meeting of Stockholders to be held on August 25, 1999, 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 1999 Annual Meeting of
Stockholders to be held on August 25, 1999, to be filed with the Securities and
Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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 by reference
herein) as part of this Form 10K:
<TABLE>
<CAPTION>
<C> <S>
2.1 Agreement and Plan of Reorganization and Merger, dated as of April 7, 1997, between the
Company, TFP Acquisition Corp., and TFP Inc. (Incorporated by reference to Exhibit 10.1 of the
Company's Form 8-K as filed with the Securities and Exchange Commission on April 17, 1997, File
No. 333-04610)
2.2 Agreement and Plan of Reorganization and Merger, dated as of August 29, 1997, between the
Company, SunRise Acq. Corp., SunRise Imaging and the principal shareholders of SunRise Imaging
(Incorporated by reference to Exhibit 2.1 of the Company's Form 8-K as filed with the
Securities and Exchange Commission on September 24, 1997 File No. 000-20719)
3.1 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)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
3.2 Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to
Exhibit 3.2 of Amendment No. 2 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)
<C> <S>
3.3 Bylaws of the Company, as currently in effect (Incorporated by reference to Exhibit 3.3 of the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on
June 30, 1997)
4.1 Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of Amendment No. 2
to 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)
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* First Amended and Restated Printrak International Inc. 1996 Stock Incentive Plan (the "1996
Plan") (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on
Form S-8 as filed with the Securities and Exchange Commission on February 27, 1998, File No.
333-47009)
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* First Amended and Restated Printrak International Inc. Employee Stock Purchase Plan--1996
(Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-8
as filed with the Securities and Exchange Commission on October 10, 1997, File No. 333-38275)
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* Employment 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 April 14, 1999 by Richard M. Giles, Trustee, in favor of the Company
10.12 Stock Pledge Agreement dated April 14, 1999 between the Company and Richard M. Giles, Trustee.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
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)
<C> <S>
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)
10.17 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)
10.18 First Amendment to Lease originally entered between the Company and RICOL, LLC, such Amendment
being dated April 1, 1998 between the Company and Kilroy Realty, L.P. (Incorporated by
reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K for the year ended March
31, 1998, as filed with the Securities and Exchange Commission on July 14, 1998, File No.
000-20719)
10.19 Loan Agreement between the Company and Union Bank dated August 12, 1996 (Incorporated by
reference to Exhibit 10.1 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 May 3, 1996, File
No. 333-4610)
10.20 First Amendment to Loan Agreement between Company and Union Bank, dated July 31, 1998.
10.21 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 Exchange Commission on
February 13, 1997, File No. 333-04610)
10.22 Promissory Note between the Company and Union Bank of California dated November 2, 1998.
10.23* TFP Stock Option Plan (Incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-8 as filed with the Securities and Exchange Commission on October 20, 1997,
File No. 333-38277)
10.24 Commercial Lease between the Company and the Irvine Co., dated February 16, 1999 (Incorporated
by reference to Exhibit 10.1 of the Company's Quarterly report on Form 10-Q for the quarter
ended December 31, 1998, File No. 000-20719)
21 Significant Subsidiaries of the Company
23.1 Consent of Independent Auditors, Deloitte & Touche LLP, dated June 29, 1999
27 Financial Data Schedule
</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
None.
23
<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 28, 1999.
<TABLE>
<S> <C> <C>
PRINTRAK INTERNATIONAL INC.
/s/ RICHARD M. GILES
-----------------------------------------
Richard M. Giles,
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER, ACTING CHIEF FINANCIAL OFFICER
AND PRESIDENT
</TABLE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------------- ---------------
<C> <S> <C>
Chairman of the Board, Chief Executive
/s/ RICHARD M. GILES Officer, acting Chief Financial Officer
------------------------------------------- and President (Principal Executive June 28, 1999
Richard M. Giles Officer and Principal Financial
Officer)
/s/ JOHN G. HARDY
------------------------------------------- President of Products Division and June 28, 1999
John G. Hardy Director
/s/ DANIEL J. DRISCOLL
------------------------------------------- President of Digital Justice Division and June 28, 1999
Daniel J. Driscoll Director
/s/ CHARLES L. SMITH
------------------------------------------- Director June 28, 1999
Charles L. Smith
/s/ ALBERT WONG
------------------------------------------- Director June 28, 1999
Albert Wong
/s/ PETER HIGGINS
------------------------------------------- Director June 28, 1999
Peter Higgins
</TABLE>
24
<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 Comprehensive Operations........................................................ F-5
Consolidated Statements of Stockholders' Equity............................................................ F-6
Consolidated Statements of Cash Flows...................................................................... F-7
Notes to Consolidated Financial Statements................................................................. F-9
Financial Statement Schedule--Valuation and Qualifying Accounts............................................ F-24
</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 subsidiaries (the Company) as of March 31, 1998 and 1999,
and the related consolidated statements of operations, comprehensive operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1999. Our audits also included the financial statement schedule
listed in the index at 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement 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 audits 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
subsidiaries as of March 31, 1998 and 1999 and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, 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
June 9, 1999
Costa Mesa, California
F-2
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 3,763,000 $ 8,557,000
Short-term investments............................................................. 1,101,000
Accounts receivable, net, (Notes 4 and 5).......................................... 28,129,000 29,995,000
Inventories, net (Note 6).......................................................... 8,229,000 8,245,000
Prepaid expenses and other current assets.......................................... 2,413,000 1,333,000
Deferred income taxes (Note 10).................................................... 1,763,000 5,207,000
------------- -------------
Total current assets........................................................... 45,398,000 53,337,000
NOTES RECEIVABLE FROM RELATED PARTIES (Note 14).................................... 558,000 74,000
PROPERTY AND EQUIPMENT, net (Note 7)............................................... 5,086,000 4,103,000
DEFERRED INCOME TAXES (Note 10).................................................... 2,243,000 3,820,000
OTHER LONG-TERM ASSETS............................................................. 2,475,000 1,638,000
GOODWILL AND OTHER INTANGIBLE ASSETS, net (Note 2)................................. 2,835,000 2,330,000
------------- -------------
TOTAL ASSETS....................................................................... $ 58,595,000 $ 65,302,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................... $ 6,538,000 $ 8,879,000
Accrued wages and employee benefits................................................ 3,178,000 1,990,000
Other accrued liabilities (Notes 8 and 16)......................................... 7,194,000 7,508,000
Current portion of long-term debt (Notes 9 and 11)................................. 1,056,000 122,000
Deferred revenue................................................................... 8,640,000 12,704,000
Income taxes payable (Note 10)..................................................... 477,000 918,000
------------- -------------
Total current liabilities...................................................... 27,083,000 32,121,000
LONG-TERM DEBT, less current portion (Notes 9 and 11).............................. 10,960,000 180,000
------------- -------------
Total liabilities.............................................................. 38,043,000 32,301,000
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (Note 12):
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; 11,269,203 (1998)
and 11,406,043 (1999) shares issued and outstanding.............................. 1,000 1,000
Additional paid-in capital......................................................... 17,850,000 18,886,000
Retained earnings.................................................................. 3,052,000 14,360,000
Note receivable from stockholder (Note 14)......................................... (300,000) (300,000)
Accumulated other comprehensive income (loss)...................................... (51,000) 54,000
------------- -------------
Total stockholders' equity..................................................... 20,552,000 33,001,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................... $ 58,595,000 $ 65,302,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------- -------------- -------------
<S> <C> <C> <C>
REVENUES (Note 5):
System............................................................. $ 54,728,000 $ 58,742,000 $ 71,195,000
Maintenance........................................................ 10,855,000 13,134,000 15,238,000
------------- -------------- -------------
Total revenues................................................. 65,583,000 71,876,000 86,433,000
COST OF REVENUES:
System............................................................. 28,111,000 36,535,000 39,774,000
Maintenance........................................................ 6,032,000 9,317,000 10,651,000
------------- -------------- -------------
Total cost of revenues......................................... 34,143,000 45,852,000 50,425,000
GROSS PROFIT....................................................... 31,440,000 26,024,000 36,008,000
OPERATING EXPENSES:
Research, development and engineering.............................. 10,859,000 11,002,000 6,936,000
Selling, general and administrative................................ 13,861,000 21,841,000 21,760,000
In-process research and development................................ 5,900,000
Merger expenses (Note 3)........................................... 874,000
Restructuring charges (Note 16).................................... 987,000
------------- -------------- -------------
Total operating expenses....................................... 24,720,000 40,604,000 28,696,000
INCOME (LOSS) FROM OPERATIONS...................................... 6,720,000 (14,580,000) 7,312,000
OTHER INCOME (EXPENSE):
Foreign currency gain (loss)....................................... (144,000) (136,000) (30,000)
Interest expense................................................... (450,000) (467,000) (540,000)
Interest income.................................................... 364,000 629,000 347,000
Other income....................................................... 283,000 159,000 67,000
------------- -------------- -------------
Total other income(expense), net............................... 53,000 185,000 (156,000)
------------- -------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES.................................. 6,773,000 (14,395,000) 7,156,000
PROVISION (BENEFIT) FOR INCOME TAXES (Note 10)..................... 2,141,000 95,000 (4,152,000)
------------- -------------- -------------
NET INCOME (LOSS).................................................. $ 4,632,000 $ (14,490,000) $ 11,308,000
------------- -------------- -------------
------------- -------------- -------------
NET INCOME (LOSS) PER COMMON SHARE:
Basic.......................................................... $ 0.44 $ (1.30) $ 1.00
------------- -------------- -------------
------------- -------------- -------------
Diluted........................................................ $ 0.42 $ (1.30) $ .96
------------- -------------- -------------
------------- -------------- -------------
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic.......................................................... 10,425,000 11,151,000 11,338,000
------------- -------------- -------------
------------- -------------- -------------
Diluted........................................................ 10,963,000 11,151,000 11,781,000
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
------------ -------------- -------------
<S> <C> <C> <C>
NET INCOME (LOSS)................................................... $ 4,632,000 $ (14,490,000) $ 11,308,000
------------ -------------- -------------
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments.......................... (85,000) (14,000) 116,000
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) arising during period............ 5,000 (35,000) (11,000)
Less: Reclassification adjustment for losses included in net
income........................................................ 11,000
------------ -------------- -------------
OTHER COMPREHENSIVE NET INCOME (LOSS)............................... (80,000) (49,000) 116,000
------------ -------------- -------------
COMPREHENSIVE NET INCOME (LOSS)..................................... $ 4,552,000 $ (14,539,000) $ 11,424,000
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK NOTE ACCUMULATIVE
-------------------- ADDITIONAL RECEIVABLE OTHER TOTAL
NUMBER OF PAID-IN RETAINED FROM COMPREHENSIVE STOCKHOLDERS'
SHARES PAR VALUE CAPITAL EARNINGS STOCKHOLDER INCOME(LOSS) EQUITY
--------- --------- ---------- ---------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1996.............. 8,722,694 $ 1,000 $1,301,000 $12,961,000 $(300,000) $ 78,000 $14,041,000
Exercise of common stock options.... 151,944 432,000 432,000
Issuance of common stock under
employee stock purchase plan...... 79,564 541,000 541,000
Issuance of common stock in initial
public offering................... 2,121,000 14,432,000 14,432,000
Unrealized gain on short term
investments....................... 5,000 5,000
Foreign currency translation
adjustment........................ (85,000) (85,000)
Accretion of TFP Preferred Stock
Prior to Merger................... 50,000 (50,000)
Other............................... (1,000) (1,000)
Net income.......................... 4,632,000 4,632,000
--------- --------- ---------- ---------- ----------- --------------- ------------
BALANCE, March 31, 1997............. 11,075,202 1,000 16,756,000 17,542,000 (300,000) (2,000) 33,997,000
Exercise of common stock options.... 110,704 385,000 385,000
Issuance of common stock under
employee stock purchase plan...... 83,297 601,000 601,000
Issuance of warrants in exchange for
services.......................... 108,000 108,000
Unrealized loss on short term
investments....................... (35,000) (35,000)
Foreign currency translation
adjustment........................ (14,000) (14,000)
Net loss............................ (14,490,000) (14,490,000)
--------- --------- ---------- ---------- ----------- --------------- ------------
BALANCE, March 31, 1998............. 11,269,203 1,000 17,850,000 3,052,000 (300,000) (51,000) 20,552,000
Exercise of common stock options.... 62,914 190,000 190,000
Issuance of common stock under
employee stock purchase plan...... 73,926 377,000 377,000
Tax benefit from stock option
exercises......................... 469,000 469,000
Unrealized loss on short term
investments....................... (11,000) (11,000)
Foreign currency translation
adjustment........................ 116,000 116,000
Net income.......................... 11,308,000 11,308,000
--------- --------- ---------- ---------- ----------- --------------- ------------
BALANCE, March 31, 1999............. 11,406,043 $ 1,000 $18,886,000 $14,360,000 $(300,000) $ 54,000 $33,001,000
--------- --------- ---------- ---------- ----------- --------------- ------------
--------- --------- ---------- ---------- ----------- --------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ 4,632,000 $(14,490,000) $11,308,000
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization.......................................... 2,659,000 3,631,000 3,446,000
Loss on disposal of assets............................................. 845,000 59,000
In process research and development.................................... 5,900,000
Deferred taxes......................................................... 1,008,000 (5,142,000)
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Accounts receivable, net............................................. (11,824,000) (1,028,000) (1,908,000)
Inventories, net..................................................... 601,000 (1,859,000) (383,000)
Prepaid expenses and other assets.................................... (1,725,000) (1,942,000) 1,916,000
Accounts payable..................................................... (852,000) 440,000 2,342,000
Accrued liabilities.................................................. 1,061,000 5,071,000 (1,138,000)
Deferred revenue..................................................... (899,000) 1,440,000 4,083,000
Income taxes payable................................................. 397,000 (253,000) 1,031,000
Other................................................................ (254,000) (1,309,000) 267,000
----------- ----------- -----------
Net cash (used in) provided by operating activities................ (5,196,000) (3,554,000) 15,881,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................... (1,459,000) (1,517,000) (1,680,000)
Cash paid for acquisitions, net of cash acquired......................... (9,609,000)
Proceeds from sale of land and building, net............................. 31,000
Sale and maturities of short term investments............................ 3,463,000 1,120,000
Purchases of short-term investments...................................... (4,235,000)
Notes receivable from related parties.................................... 888,000 (15,000) 484,000
----------- ----------- -----------
Net cash (used in) investing activities............................ (4,806,000) (7,678,000) (45,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................................. 6,116,000 46,176,000
Principal payments on long-term debt..................................... (10,878,000) (35,979,000) (11,714,000)
Proceeds from common stock issuances..................................... 15,405,000 986,000 567,000
----------- ----------- -----------
Net cash (used in) provided by financing activities................ 10,643,000 11,183,000 (11,147,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH BALANCES......................... (70,000) (20,000) 105,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... 571,000 (69,000) 4,794,000
CASH AND CASH EQUIVALENTS, beginning of year............................. 3,261,000 3,832,000 3,763,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year................................... $ 3,832,000 $ 3,763,000 $ 8,557,000
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid during the year for:
Interest............................................................... $ 450,000 $ 470,000 $ 540,000
----------- ----------- -----------
----------- ----------- -----------
Income taxes paid (received)........................................... $ 833,000 $ 828,000 $ (680,000)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NONCASH TRANSACTIONS:
For the year ended March 31, 1998, the Company entered into capital lease
agreements for equipment amounting to $65,000.
During the years ended March 31, 1998 and 1999, the Company capitalized
$1,104,000 and $367,000, respectively, of equipment and materials, previously
classified as inventory, into fixed assets.
F-7
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
During the year ended March 31, 1998, the Company issued warrants to purchase
20,000 shares of stock in exchange for services received from a vendor valued at
$108,000.
During the year ended March 31, 1999, the Company recorded a deferred tax
benefit of $469,000, related to disqualifying dispositions of stock options
exercised, as an increase to additional paid in capital.
Detail of businesses acquired in purchase transactions during the year ended
March 31, 1998:
<TABLE>
<S> <C>
Purchased in-process research and development........................................ $5,900,000
Fair value of assets acquired........................................................ 10,645,000
Liabilities assumed.................................................................. (6,936,000)
----------
Cash paid for acquisitions, net of cash acquired..................................... $9,609,000
----------
----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
1. DESCRIPTION OF THE BUSINESS
Printrak International Inc. ("the Company") is a worldwide supplier of
integrated identification and information systems used primarily in criminal
justice and public safety applications, as well as in emerging applications in
civil markets such as welfare and immigration control. The Company provides
networked fingerprint, photo imaging, computer-aided dispatch and automated
records management systems, as well as digital scanning devices. The Company's
integrated systems serve approximately 700 national, state, county and municipal
agencies in 36 countries.
The Company primarily 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Printrak International Inc. and its wholly-owned subsidiaries,
Printrak Australia Pty., Printrak Limited and Printrak Argentina. All
significant intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION--The Company accounts for system revenue pursuant to SOP
97-2, SOFTWARE REVENUE RECOGNITION or SOP 81-1, LONG TERM CONSTRUCTION
CONTRACTS, as applicable.
Pursuant to SOP 97-2, the Company recognizes revenue on contracts which do
not require significant modification or customization of software when all of
the following conditions are met: a signed contract is obtained, delivery has
occurred, the fee is fixed and determinable, collectibility is probable, and any
uncertainties with regard to customer acceptance are insignificant. Most
contracts include a combination of the following elements: hardware, software,
license fees, installation, program modifications, file conversion, training and
customer support. For such contracts, SOP 97-2 requires that revenue be
allocated to each element based on vendor specific objective evidence of the
elements fair value. Revenue allocated to undelivered elements is recognized as
the above criteria are met. For contracts which require significant
customization to the basic system, revenue recognition is based on SOP 81-1.
Under these types of contracts, the Company recognizes revenue under the
percentage of completion method, principally based on output measures such as
contract milestones or units shipped. Revenue from maintenance service
agreements is recognized ratably over the period of the contract. Cash payments
for system sales or maintenance received in advance of revenue recognition are
classified as deferred revenue.
SOP 97-2 was issued in October 1997 and adopted by the Company for fiscal
1999. Prior to the effective date of SOP 97-2, the Company recognized revenue
pursuant to SOP 91-1, SOFTWARE REVENUE RECOGNITION, which was superseded by SOP
97-2 for all transactions entered into in fiscal years beginning after December
15, 1997.
FOREIGN CURRENCY--The financial position and results of operations of the
Company's foreign subsidiaries are measured using the local currency as the
functional currency. Assets and liabilities of these subsidiaries 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 foreign currency translation
F-9
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adjustments account in stockholders' 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 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, 1998, 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.
LONG LIVED ASSETS--The Company accounts for the impairment and disposition
of long-lived assets in accordance with Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. In accordance with SFAS No.
121, long-lived assets to be held are reviewed for events or changes in
circumstances which indicate that their carrying value may not be recoverable.
The Company periodically reviews the carrying value of long-lived assets to
determine whether or not an impairment to such value has occurred and has
determined that there was no impairment at March 31, 1999.
GOODWILL AND OTHER INTANGIBLES--Goodwill represents the excess purchase cost
over the net assets acquired and is amortized over lives ranging from 3 to 10
years using the straight-line method. Other intangible assets include acquired
workforce value and acquired technology which are being amortized using the
straight-line method over 36 and 42 months, respectively. Accumulated
amortization on goodwill and other intangible assets amounted to $542,000 and
$622,000 as of March 31, 1998 and 1999, respectively. The Company periodically
evaluates the recoverability of goodwill based on a profitability analysis
related to its product sales and evaluates the recoverability of other
intangible assets based on the requirements of SFAS No. 121. The Company has
determined that there was no impairment as of March 31, 1999.
INCOME TAXES--The Company accounts for income taxes under SFAS No. 109,
ACCOUNTING FOR INCOME TAXES which provides that deferred income taxes are
recognized for the tax consequences in future years for differences between the
tax bases 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.
F-10
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 years ended March 31, 1997, 1998 and
1999 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.
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. Management believes that system modifications can generally be
utilized by other customers and accordingly, has combined such costs with
research, development and engineering. Any customized modification for a
customer contract is charged to cost of sales as management believes these costs
are specific to a customer's workflow requirements.
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 (APB) Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES (Note 12).
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 (LOSS) PER SHARE--Pursuant to SFAS No. 128, EARNINGS PER SHARE,
(SFAS No. 128), the Company provides dual presentation of "Basic" and "Diluted"
earnings per share (EPS). SFAS No. 128 replaced "Primary" and "Fully diluted"
EPS under Accounting Principles Board ("APB") Opinion No. 15.
Basic EPS excludes dilution from common stock equivalents and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution from common stock equivalents, similar to fully diluted EPS, but uses
only the average stock price during the period as part of the computation.
Common stock equivalents are excluded from the calculation of diluted EPS in
loss years, as the impact is antidilutive.
The number of shares used in computing EPS is as follows for the year ended
March 31:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average shares outstanding--basic.......... 10,425,000 11,151,000 11,338,000
Common stock equivalents............................ 538,000 443,000
------------ ------------ ------------
Weighted average shares outstanding--diluted........ 10,963,000 11,151,000 11,781,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-11
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME--Pursuant to SFAS No. 130, REPORTING COMPREHENSIVE
INCOME, the Company has included Consolidated Statements of Comprehensive
Operations for the years ended March 31, 1997, 1998 and 1999.
SEGMENT REPORTING--In June 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, (SFAS No. 131). This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosure about
products and services, geographic areas and major customers.
POSTRETIREMENT BENEFITS--In February 1998, the FASB issued SFAS No. 132,
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS, (SFAS
No. 132). This statement revises and standardizes employers' disclosure
requirements about pension and other postretirement benefit plans, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis and eliminates certain
disclosures that are not longer useful. The Company does not maintain an
employee pension plan or any other postretirement benefit plans.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the FASB issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES which the
Company is required to adopt effective in its fiscal year 2000. SFAS No. 133
will require the Company to record all derivatives on the balance sheet at fair
value. The Company does not currently engage in hedging activities and will
continue to evaluate the effect of adopting SFAS No. 133. The Company will adopt
SFAS No. 133 in its fiscal year 2000.
RECLASSIFICATION--Certain amounts in the accompanying consolidated financial
statements have been reclassified to conform with the March 31, 1999
presentation.
3. 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 accordance
with the terms and conditions of the Agreement and Plan of Reorganization and
Merger dated as of April 7, 1997, by and among Printrak, TFP Acquisition Corp.,
a South Carolina corporation and wholly-owned subsidiary of Printrak, and TFP.
Pursuant to the Merger Agreement, TFP became a wholly-owned subsidiary of
Printrak and the outstanding shares and outstanding warrants to purchase shares
of TFP common stock and Series A preferred stock were converted into an
aggregate of 1,399,494 shares of Printrak common stock. Additionally, all the
outstanding options to purchase shares of TFP common stock were converted into
options to purchase 116,496 shares of Printrak common stock. The terms of the
Merger Agreement were the result of arm's length negotiations among the parties.
The transaction was accounted for under the pooling of interests method of
accounting.
F-12
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
3. ACQUISITIONS (CONTINUED)
The following table shows the separate historical results of the Company and
TFP for the year ended March 31, 1997.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
<S> <C>
Revenues
Printrak.................................................................... $ 58,865,000
TFP......................................................................... 6,718,000
--------------
Total..................................................................... $ 65,583,000
--------------
--------------
Net income
Printrak.................................................................... $ 4,428,000
TFP......................................................................... 204,000
--------------
Total..................................................................... $ 4,632,000
--------------
--------------
</TABLE>
Merger expenses incurred to consummate the TFP transaction totaled $874,000,
consisting of investment banking fees, 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 year ended March 31, 1998.
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
the purchase method of accounting. As a result of the acquisition, the business
unit operates as a division of the Company (the Boulder Division) and its
operating results have been included in the Company's consolidated statement of
operations from the date of acquisition. The Boulder Division provides
computer-aided dispatch systems and records management systems for law
enforcement, fire and emergency medical services agencies. The total purchase
price for the transaction was $697,000, which was allocated to $4,253,000 of
acquired identified assets, $1,966,000 of goodwill, and ($5,522,000) of assumed
liabilities. The pro forma impact of the SCC acquisition in fiscal 1997 and 1998
was not significant.
On September 9, 1997, the Company acquired the outstanding shares of SunRise
Imaging (SunRise), a California corporation, in a transaction accounted for
under the purchase method of accounting. As a result of the acquisition, SunRise
became a wholly owned subsidiary of the Company and its operating results have
been included in the Company's consolidated statement of operations from the
date of acquisition. SunRise develops and manufactures automated systems which
digitize microfilm and microfiche records. The total purchase price for the
transaction was $10,175,000, which was allocated to $5,002,000 of acquired
identified assets, $5,900,000 of acquired in-process research and development,
$687,000 of goodwill, and ($1,414,000) of assumed liabilities. As of the
acquisition date, the technological feasibility of the acquired in-process
research and development had not been established and, accordingly, the
allocated value was charged to operations during the year ended March 31, 1998.
The consolidated
F-13
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
3. ACQUISITIONS (CONTINUED)
results of operations on a pro forma basis as though the SunRise acquisition had
been consummated on April 1, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Total revenues................................................. $ 63,123,000 $ 77,871,000
Net income (loss).............................................. $ 5,530,000 $ (3,755,000)
Net income (loss) per common share
Basic........................................................ $ .53 $ (.34)
Diluted...................................................... $ .50 $ (.34)
</TABLE>
The pro forma information is not necessarily indicative of the results of
operations that would have occurred nor of future results of the combined
enterprise.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at March 31:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Billed receivables............................................. $ 18,641,000 $ 22,626,000
Unbilled receivables........................................... 10,840,000 7,996,000
------------- -------------
29,481,000 30,622,000
Less allowance for doubtful accounts........................... (1,352,000) (627,000)
------------- -------------
$ 28,129,000 $ 29,995,000
------------- -------------
------------- -------------
</TABLE>
Unbilled receivables consist of system and maintenance revenues which have
been earned but not invoiced because of contractual terms of the underlying
agreements.
5. CONCENTRATIONS OF REVENUE, CREDIT RISK AND OPERATING SEGMENT
MAJOR CUSTOMERS--The Company's revenues are generated from credit sales to
customers primarily in the public safety market. The Company performs credit
evaluations of its commercial customers and maintains reserves for potential
credit losses and generally does not require collateral. However, the majority
of the customers are government agencies which do not require credit
evaluations.
Major customers have varied from year to year but a significant portion of
the Company's revenue has historically consisted of large orders from a limited
number of customers. Sales to individual customers amounting to more than 10% of
total revenues were $9,040,000 and $6,863,000 in fiscal 1997. No individual
customer exceeded 10% of total revenues in fiscal years 1998 and 1999. Given the
significant amount of revenues derived from such customers in any given year,
the uncollectibility of related receivables or a decrease in the number of large
orders received could have a material adverse effect on the Company's financial
condition and results of operations.
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
F-14
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
5. CONCENTRATIONS OF REVENUE, CREDIT RISK AND OPERATING SEGMENT (CONTINUED)
sales and support operations, greater working capital requirements, political
and economic instability, and potentially limited intellectual property
protection.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
Company's chief operating decision maker, or decision making group, in deciding
how to allocate resources and in assessing performance. The Company operates in
only one segment, which entails the design, manufacture and sale of integrated
identification and information systems for public safety and civil applications.
The Company's products include Automated Fingerprint Identification Systems
(AFIS), Computer Aided Dispatch Systems/Record Management Systems (CAD/RMS),
Digitalization Systems and Digital Photo Mugshot Systems.
The Company does not allocate operating expenses to these segments, nor does
it allocate specific assets to these segments. Therefore, segment information
reported includes only revenues. Operating segment data for the years ended
March 31, 1997, 1998 and 1999 was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
AFIS............................................ $ 58,865,000 $ 49,559,000 $ 58,456,000
CAD/RMS......................................... 8,186,000 14,410,000
Digitalization.................................. 3,878,000 7,445,000
Mugshot......................................... 6,718,000 10,253,000 6,122,000
------------- ------------- -------------
Total Revenues................................ $ 65,583,000 $ 71,876,000 $ 86,433,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
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 ending March 31:
<TABLE>
<CAPTION>
GEOGRAPHIC AREA 1997 1998 1999
- --------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Domestic............................................................. 69.1% 75.6% 66.0%
Europe............................................................... 10.8% 11.9% 13.0%
Canada............................................................... 18.8% 1.5% 10.5%
Latin America........................................................ -- 5.2% 9.3%
Other International.................................................. 1.3% 5.8% 1.2%
--------- --------- ---------
100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
6. INVENTORIES
Inventories consist of the following at March 31:
<TABLE>
<CAPTION>
1998 1999
------------- ------------
<S> <C> <C>
Raw materials.................................................... $ 4,979,000 $ 4,678,000
Work in process.................................................. 4,657,000 4,114,000
------------- ------------
9,636,000 8,792,000
Less allowance for excess and obsolete inventories............... (1,407,000) (547,000)
------------- ------------
$ 8,229,000 $ 8,245,000
------------- ------------
------------- ------------
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Building and improvements...................................... $ 365,000 $ 642,000
Computer equipment............................................. 8,616,000 8,643,000
Purchased software............................................. 697,000 1,130,000
Other equipment and furniture.................................. 1,436,000 2,155,000
------------- -------------
11,114,000 12,570,000
Less accumulated depreciation and amortization................. (6,028,000) (8,467,000)
------------- -------------
$ 5,086,000 $ 4,103,000
------------- -------------
------------- -------------
</TABLE>
Assets under capital lease were $968,000 and $858,000 as of March 31, 1998
and 1999, respectively. Accumulated amortization on such leased equipment
amounted to $466,000 and $563,000, respectively (Note 11).
8. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following at March 31:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Warranty and estimated costs to complete system installations..... $ 4,776,000 $ 3,578,000
Sales commissions................................................. 1,128,000
Sales and foreign taxes........................................... 804,000 713,000
Professional fees................................................. 145,000 275,000
Insurance......................................................... 38,000 94,000
Restructuring..................................................... 618,000 452,000
Other............................................................. 813,000 1,268,000
------------ ------------
$ 7,194,000 $ 7,508,000
------------ ------------
------------ ------------
</TABLE>
F-16
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
9. LONG-TERM DEBT
Long-term debt consists of the following at March 31:
<TABLE>
<CAPTION>
1998 1999
------------- -----------
<S> <C> <C>
Credit facility 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%:
$15 million Revolving Credit Line.......................................... $ 7,488,000 $ --
Term Loan.................................................................. 4,000,000 --
Obligations under capital leases (Note 11)................................... 528,000 302,000
------------- -----------
12,016,000 302,000
Less current portion of long-term debt....................................... (1,056,000) (122,000)
------------- -----------
$ 10,960,000 $ 180,000
------------- -----------
------------- -----------
</TABLE>
During fiscal 1999, the Company repaid the outstanding principal balance on
its credit facility and extended its $15.0 million revolving credit line
facility to January 4, 2000. The revolving line of credit agreement contains
certain restrictive covenants, which restrict the Company's ability to pay
dividends and requires the Company to maintain minimum tangible net worth and
certain other financial ratios. The Company was in compliance with these
covenants as of March 31, 1999. The bank's reference rate and LIBOR rate at
March 31, 1999 were 7.75% and 4.9%, respectively.
Annual debt principal repayments are as follows:
<TABLE>
<S> <C>
Year ending March 31:
2000............................................................ $ 122,000
2001............................................................ 97,000
2002............................................................ 80,000
2003............................................................ 3,000
---------
$ 302,000
---------
---------
</TABLE>
F-17
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
10. INCOME TAXES
The Company's provision for income taxes consists of the following for the
year ended March 31:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ----------- -------------
<S> <C> <C> <C>
Current:
Federal........................................... $ 499,000 $ (236,000) $ 414,000
State............................................. 551,000 51,000 193,000
Foreign........................................... 280,000 280,000 (86,000)
------------ ----------- -------------
Total current................................... 1,330,000 95,000 521,000
------------ ----------- -------------
Deferred:
Federal........................................... 528,000 2,050,000
State............................................. 283,000 (465,000)
Foreign........................................... (103,000)
Change in valuation allowance..................... (6,155,000)
------------ ----------- -------------
Total deferred.................................. 811,000 -0- (4,673,000)
------------ ----------- -------------
Total provision (benefit)........................... $ 2,141,000 $ 95,000 $ (4,152,000)
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
The net deferred tax assets at March 31, 1998 were offset by a valuation
allowance of $6,155,000. During the year ended March 31, 1999, the future
realization of the net deferred tax assets was determined by management to be
more likely than not based on current and projected future taxable income and
accordingly, the valuation allowance of $6,155,000 was reversed.
The reconciliation between the Company's effective tax rate and the
statutory federal income tax rate follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate..................................... 35.0% (35.0)% 35.0%
State taxes net of federal benefit.................................... 8.1 (1.7) 4.2
Previously unbenefitted state NOLs and R&D credits.................... (10.1)
Foreign operations.................................................... 1.2 (0.1) (2.2)
Increase (decrease) in valuation allowance............................ (15.8) 22.2 (86.0)
In Process research and development................................... 14.3
Goodwill and other intangibles........................................ 1.3 1.4
Other................................................................. 3.1 (0.3) (0.3)
--------- --------- ---------
31.6% 0.7% (58.0)%
--------- --------- ---------
--------- --------- ---------
</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.
F-18
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
10. INCOME TAXES (CONTINUED)
Income (loss) before provision for income taxes was comprised of the
following for the year ended March 31:
<TABLE>
<CAPTION>
1997 1998 1999
------------ -------------- ------------
<S> <C> <C> <C>
Income (loss) before provision for income taxes:
Domestic........................................ $ 5,968,000 $ (15,041,000) $ 7,360,000
Foreign......................................... 805,000 646,000 (204,000)
------------ -------------- ------------
$ 6,773,000 $ (14,395,000) $ 7,156,000
------------ -------------- ------------
------------ -------------- ------------
</TABLE>
Deferred tax assets consist primarily of the following temporary differences
at March 31:
<TABLE>
<CAPTION>
1998 1999
------------- ------------
<S> <C> <C>
Net operating loss carryforwards................................. $ 3,901,000 $ 2,260,000
Intangible asset basis........................................... 1,252,000 824,000
Deferred revenue................................................. 876,000 1,534,000
Reserves......................................................... 3,613,000 2,702,000
Employee benefits................................................ 245,000 426,000
Depreciation..................................................... 537,000 800,000
Other............................................................ (263,000) 481,000
------------- ------------
Gross deferred assets............................................ 10,161,000 9,027,000
Valuation allowance.............................................. (6,155,000) -0-
------------- ------------
Net deferred tax assets.......................................... $ 4,006,000 $ 9,027,000
------------- ------------
------------- ------------
</TABLE>
At March 31, 1999, the Company has net operating loss carryforwards of
approximately $4,237,000 and $13,653,700, respectively, for federal and
California income tax purposes, which begin to expire in 2003. As a result of an
equity ownership change in a prior year, the use of certain of the federal and
California net operating loss carryforwards is subject to limitations.
11. 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 $849,000, $958,000 and $1,118,000 in rent
expense during the years ended March 31, 1997, 1998 and 1999, respectively.
During each of the years ended March 31, 1997 and 1998, $773,000 of rent expense
was to a related party (Note 14).
F-19
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease commitments at March 31, 1999 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:
2000............................................................. $ 146,000 $ 1,777,000
2001............................................................. 111,000 1,747,000
2002............................................................. 86,000 1,739,000
2003............................................................. 4,000 1,480,000
2004............................................................. 1,290,000
Thereafter....................................................... 1,058,000
----------- ------------
Total minimum payments required.................................... 347,000 $ 9,091,000
------------
------------
Less amount representing interest.................................. (45,000)
-----------
Capital lease obligations.......................................... 302,000
Less current portion of capital lease obligations.................. (122,000)
-----------
$ 180,000
-----------
-----------
</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, 1999, the Company had outstanding performance bonds ensuring
performance under various contracts which totaled $26,598,193.
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, 1999, 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.
12. COMMON 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, 1999, there were
options outstanding to purchase 646,194 shares under the Executive Plan at a
weighted average exercise price of $4.78 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, 1999, there were
options outstanding to purchase 463,289 shares under the 1994 Plan at a weighted
average exercise price of $4.31 per share.
F-20
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
12. COMMON STOCK BENEFIT PLANS (CONTINUED)
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. The 1996 Plan provides for
options to purchase shares of the Company's common stock and restricted stock
grants covering an aggregate of 1,500,000 shares of the Company's common stock.
As of March 31, 1999, there were options outstanding to purchase 1,007,684
shares under the 1996 Plan at a weighted average exercise price of $5.45 per
share.
TFP STOCK INCENTIVE PLAN--TFP adopted a stock option plan in August 1994. In
conjunction with the acquisition of TFP, the outstanding options were converted
into the right to acquire 116,496 shares of common stock of Printrak. As of
March 31, 1999, there were options outstanding to purchase 41,552 shares under
the Plan at a weighted average exercise price of $2.77 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, 1999, options to purchase 629,000 shares were available
for future grant under these Plans.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
WEIGHTED EXERCISABLE AS
NUMBER OF AVERAGE OF FISCAL YEAR
SHARES EXERCISE PRICE END
----------- --------------- ---------------
<S> <C> <C> <C>
BALANCE, March 31, 1996............................................. 1,349,300 5.74
Granted (weighted average fair value of $5.62).................... 260,600 8.45
Exercised......................................................... (151,944) 2.84
Canceled.......................................................... (166,456) 10.21
-----------
BALANCE, March 31, 1997............................................. 1,291,500 6.06 525,000
Granted (weighted average fair value of $9.57).................... 874,800 10.52
Exercised......................................................... (110,704) 3.47
Canceled.......................................................... (189,824) 11.35
-----------
BALANCE, March 31, 1998............................................. 1,865,772 7.72 828,250
Granted (weighted average fair value of $4.95).................... 1,801,800 5.76
Exercised......................................................... (62,914) 3.03
Canceled.......................................................... (1,445,939) 9.68
-----------
BALANCE, March 31, 1999............................................. 2,158,719 5.01 1,003,822
-----------
-----------
</TABLE>
F-21
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
12. COMMON STOCK BENEFIT PLANS (CONTINUED)
Stock options outstanding at March 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED -------------------------------
NUMBER WEIGHTED AVERAGE AVERAGE NUMBER WEIGHTED
RANGE OF OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT AVERAGE
EXERCISE PRICES MARCH 31, 1999 CONTRACTUAL LIFE PRICE MARCH 31, 1999 EXERCISE PRICE
- ---------------- -------------- ------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
$2.46 16,051 8.10 $ 2.46 16,051 $ 2.46
$2.50 447,008 4.00 2.50 436,928 2.50
$2.96-$4.94 174,744 8.15 4.06 84,406 3.55
$5.25 1,046,016 8.43 5.25 288,682 5.25
$5.38-$11.75 474,900 7.85 6.98 177,755 7.07
-------------- --------------
$2.46-$11.75 2,158,719 7.35 $ 4.95 1,003,822 $ 4.19
-------------- --------------
-------------- --------------
</TABLE>
On May 26, 1998, the Board of Directors approved a program for the
cancellation and regrant of 452,000 options whereby the existing options of six
executives ranging from $9.88 to $18.75 would be canceled and regranted at the
fair market value of $6.94 per share. On July 13, 1998, the Board of Directors
approved a program for the Cancellation and regrant of 654,047 options whereby
all other options, held by remaining employees ranging from $6.25 to $12.50
would be canceled and regranted for options priced at the fair market value of
$5.25 per share. The vesting period for the repriced shares remained unchanged
in both cases.
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. The number of shares available for purchase was
increased to 350,000 during fiscal 1998. Employees are 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 lower of the fair market value of the common stock at the beginning or end
of each six month offer period. The Purchase Plan will terminate on December 31,
2006.
Activity under the Purchase Plan is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES WEIGHTED AVERAGE FAIR VALUE PER
FISCAL YEAR ISSUED PRICE PER SHARE SHARE
- ----------- ----------- ----------------- -------------------
<S> <C> <C> <C>
1997 79,564 $ 6.80 $ 8.50
1998 83,297 $ 7.21 $ 11.62
1999 73,926 $ 5.10 $ 6.41
</TABLE>
At March 31, 1999, 113,213 shares were reserved for future issuances under
the Purchase Plan.
ADDITIONAL 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,
F-22
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
12. COMMON STOCK BENEFIT PLANS (CONTINUED)
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,
approximately two years following vesting; stock volatility, 78% in 1997, 63% in
1998 and 80% in 1999; risk free interest rates, 6.0% in 1997, 6.0% in 1998 and
5.4% in 1999 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.
Had compensation cost been determined under all of the Company's plans using
the provisions of SFAS No. 123, the Company's net income (loss) and income
(loss) per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1998 1999
------------ -------------- -------------
<S> <C> <C> <C> <C>
Net income (loss): As reported $ 4,632,000 $ (14,490,000) $ 11,308,000
Pro forma $ 3,922,000 $ (16,541,000) $ 7,938,000
Income (loss) per share:
Basic: As reported $ 0.44 $ (1.30) $ 1.00
Pro forma $ 0.38 $ (1.48) $ .70
Diluted: As reported $ 0.42 $ (1.30) $ .96
Pro forma $ 0.36 $ (1.48) $ .67
</TABLE>
13. EMPLOYEE BENEFIT PLANS
The Company's 401(k) Savings Plan (the Savings Plan) covers domestic
full-time employees with 90 days of consecutive service. In May 1997, the Board
approved a resolution to match employee contributions. Employee deferrals during
fiscal year 1998 were eligible for a matching contribution equal to fifty
percent (50%) of the employee's salary deferral, not to exceed 4% of the
employee's annual salary. Matching contributions vest over a period of four
years of service. The aggregate expense related to the contributions was
$270,000 and $329,000 in 1998 and 1999, respectively.
Effective April 1, 1993, the Company adopted a Profit Sharing Plan (the
Plan) that covered all domestic full-time employees with 90 days of consecutive
service. Under the Plan, each eligible employee received a bonus, determined
under a formula set forth in the Plan, based on the Company's earnings. Bonuses
incurred under the Plan totaled approximately $747,000 for the year ended March
31, 1997. The Plan was terminated as of December 31, 1996.
F-23
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999
14. RELATED-PARTY TRANSACTIONS
On May 14, 1998, RICOL, LLC, a California limited liability company (RICOL),
which is controlled by Richard M. Giles, the Company's Chairman, President,
Chief Executive Officer and Acting Chief Financial Officer, sold the principal
operating facility (the Property) utilized by the Company. Upon the sale of the
building, RICOL repaid a note plus interest in the aggregate amount of $558,000
to the Company associated with the original sale of the building from the
Company to RICOL on May 13, 1995. During fiscal year 1997, the Company received
$730,000 of principal payments on the note receivable from RICOL. In connection
with the sale of the property, the Company entered into a lease for the Property
with the unrelated third party for a term of six years, expiring April 30, 2004
with rent of $58,087 per month, subject to adjustments.
From time to time, the Company has made loans to Mr. Giles, which have been
evidenced by promissory notes. On April 14, 1999 the Company extended a loan for
$600,000 to Mr. Giles which is collateralized by 200,000 shares of the Company's
common stock owned by the Giles Trust, bears interest at 5.5% per annum, and
matures April 14, 2001.
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
was collateralized by the related shares, bears interest at 5.5% per annum, and
principal and interest was due as of March 1, 1998. The loan was extended during
the current year and is now due on March 1, 2000. Due to its nature, the loan
has been classified as a reduction of stockholders' equity in the accompanying
consolidated financial statements.
15. 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.
16. RESTRUCTURING CHARGES
In fiscal 1998, the Company announced a formal plan for restructuring both
its SunRise and TFP subsidiaries to realize cost savings and capitalize on
synergies by consolidating the subsidiaries into the Company's Anaheim
operations. The restructuring charges of $987,000 include lease termination and
facility closure costs, losses on the disposition of fixed assets and severance
costs for terminated employees. As a result of the restructuring, the Company
also incurred inventory write-offs, the value of which was impacted by the
Company's decision to relocate and outsource manufacturing operations, personnel
relocation costs, and other integration costs. These additional costs amounted
to approximately $2,191,000 and are included in cost of sales ($882,000),
research, development and engineering ($249,000), and selling general and
administrative expenses ($1,060,000) in the accompanying consolidated statements
of operations. The restructuring was completed during fiscal 1999, and the
remaining accrual relates to future minimum lease obligations, which run through
2002.
F-24
<PAGE>
PRINTRAK INTERNATIONAL INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT --------------------------
BEGINNING OF CHARGED TO FROM BALANCE AT
DESCRIPTION PERIOD EXPENSES ACQUISITIONS DEDUCTIONS END OF PERIOD
- ----------------------------------------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997:
Allowance for doubtful accounts
receivable............................. $ 327,000 $ 47,000 $ (81,000) $ 293,000
Allowance for excess and obsolete
inventories............................ 584,000 603,000 (740,000) 447,000
------------ ------------ ------------- -------------
Total.................................... $ 911,000 $ 650,000 $ (821,000) $ 740,000
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Year ended March 31, 1998:
Allowance for doubtful accounts
receivable............................. $ 93,000 $ 1,051,000 $ 420,000 $ (412,000) $ 1,352,000
Allowance for excess and obsolete
inventories............................ 447,000 995,000 743,000 (778,000) 1,407,000
------------ ------------ ------------ ------------- -------------
Total.................................... $ 740,000 $ 2,046,000 $ 1,163,000 $ (1,190,000) $ 2,759,000
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
Year ended March 31, 1999:
Allowance for doubtful accounts
receivable............................. $ 1,352,000 $ 1,020,000 $ $ (1,745,000) $ 627,000
Allowance for excess and obsolete
inventories............................ 1,407,000 (860,000) 547,000
------------ ------------ ------------ ------------- -------------
Total.................................... $ 2,759,000 $ 1,020,000 $ $ 2,605,000 $ 1,174,000
------------ ------------ ------------ ------------- -------------
------------ ------------ ------------ ------------- -------------
</TABLE>
F-25
<PAGE>
EXHIBIT 10.11
SECURED PROMISSORY NOTE
$600,000 APRIL 14, 1999
ANAHEIM, CALIFORNIA
FOR VALUE RECEIVED, receipt of which is hereby acknowledged, the
undersigned Richard M. Giles, Trustee of the Giles Living Trust UDT dated
December 17, 1993 (the "Borrower") promises to pay to the order of Printrak
International Inc., a Delaware corporation (the "Company"), in lawful money of
the United States of America, the principal sum of Six Hundred Thousand Dollars
($600,000).
1. PRINCIPAL AND INTEREST. The principal balance of the Note together
with interest accrued and unpaid to date shall be due and payable on or before
April 14, 2001.
2. RATE OF INTEREST. Interest shall accrue under the Note on any unpaid
principal balance at a rate per annum equal to the lesser of 5.5% or the maximum
rate permitted by law, and shall be paid on or before the maturity of this Note.
3. APPLICATION PAYMENTS. Each payment shall be credited first to accrued
but unpaid interest and the balance to principal. Prepayment of principal and
interest may be made at any time without penalty.
4. EVENTS OF ACCELERATION. The entire unpaid principal and unpaid
interest of the Note shall become immediately due and payable upon one or more
of the following events:
(a) the default in any payment due under this Note, and the failure
to cure such default within ten days of written notice of such default;
(b) the insolvency of Richard M. Giles or the Borrower, the execution
by Richard M. Giles or the Borrower of a general assignment for the benefit of
creditors, the filing by or against Richard M. Giles or the Borrower of a
petition in bankruptcy or a petition for relief under the provisions of the
federal bankruptcy act of another state or federal law for the relief of debtors
and the continuation of such petition without dismissal for a period of ninety
(90) days or more;
(c) the occurrence of a material event of default under the Stock
Pledge Agreement securing this Note;
(d) the termination of Richard M. Giles' employment with the Company;
or
(e) the liquidation of the Borrower; or
(f) the sale of any shares of Common Stock of the Company which are
pledged as security pursuant to the Stock Pledge Agreement dated concurrently
herewith.
5. SECURITY. Payment of this Note shall be secured by 200,000 shares of
the Company's Common Stock pursuant to a Stock Pledge Agreement dated
concurrently herewith. In addition, Richard M. Giles agrees to unconditionally
and personally guarantee the obligations of the
<PAGE>
Borrower under this Note. Anything herein to the contrary notwithstanding, in
the event of any default in payment or principal or interest under this Note,
the Company agrees to pursue to the fullest extent possible its rights and
remedies to foreclose upon and dispose of the shares of Common Stock pledged
as collateral under the Stock Pledge Agreement prior to pursuing any right or
remedy as to the personal liability or other assets of the Borrower and
Richard M. Giles.
6. COLLECTION. If action is instituted to collect this Note, the
Borrower and Richard M. Giles promises to pay all reasonable costs and expenses
(including reasonable attorneys fees) incurred in connection with such action.
7. WAIVER. No previous waiver and no failure or delay by the Company or
in acting with respect to the terms of this Note or the Stock Pledge Agreement
shall constitute a waiver of any breach, default, or failure or condition under
this Note, the Stock Pledge Agreement, or any of the obligations secured thereby
must be made in writing and shall be limited to the express terms of such
waiver. The Borrower and Richard M. Giles hereby expressly waives presentment
and demand for payment at such time as any payments are due under this Note.
8. CONFLICTING AGREEMENTS. In the event of any inconsistencies between
the terms of this Note and the terms of any other document related to the loan
evidenced by the Note, the terms of this Note shall prevail.
9. GOVERNING LAW. This Note shall be construed in accordance with the
law of the State of California.
/s/ Richard M. Giles
--------------------------------------------------
Richard M. Giles, Trustee of the Giles Living Trust
UDT dated December 17, 1993
/s/ Richard M. Giles
---------------------------------------------------
Richard M. Giles, Guarantor
<PAGE>
EXHIBIT 10.12
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (the "Agreement") is entered into this 14th of
April 1999 by and between Printrak International Inc., a Delaware corporation
(the "Company") and Richard M. Giles, Trustee of the Giles Living Trust UDT
dated December 17, 1993 (the "Stockholder").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, the
Stockholder has executed and delivered a Secured Promissory Note in the original
principal amount of Six Hundred Thousand Dollars ($600,000.00) (the "Note").
B. The Company and the Stockholder desire to secure performance of
Stockholder's obligations and indebtedness under the Note.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual agreements,
covenants and conditions and releases contained herein, the Company and the
Stockholder hereby agree as follows:
1. COLLATERAL. The Stockholder hereby grants the Company a security
interest in, and assigns, transfers to and pledges the Company the following
securities and other property:
(i) the 200,000 shares of Company's common stock ("Common Stock")
deposited with the Company as collateral for the Note;
(ii) any and all new, additional or different securities or other
property subsequently distributed with respect to the shares identified in
Subsection (i) that are to be deposited with the Company pursuant to the
requirements of Section 4 of this Agreement; and
(iii) any and all other property and money that is delivered to or
comes into the possession of the Company pursuant to the terms and provisions of
this Agreement.
All securities, property and money so assigned, transferred to and pledged
with the Company shall be herein referred to as the "Collateral" and shall be
accompanied by one or more stock power assignments properly endorsed by the
Stockholder. The Company shall hold the Collateral in accordance with the
following terms and provision contained herein.
2. WARRANTIES. The Stockholder hereby warrants that the Stockholder is
the owner of the Collateral and has the right to pledge the Collateral and that
the Collateral is free from all liens, adverse claims and other security
interests (other than those created hereby).
3. RIGHTS AND POWERS. The Company may without obligation to do so,
exercise one or more of the following rights and powers with respect to the
Collateral:
<PAGE>
(a) accept in its discretion, but subject to the applicable
limitations of Sections 7(c) and 7(e), other property of the Stockholder in
exchange for all or part of the Collateral and release Collateral to the
Stockholder to the extent necessary to effect such exchange, and in such event
the money, property or securities received in the exchanges shall be held by the
Company as substitute security for the Note and all other indebtedness secured
hereunder, and
(b) transfer record ownership of the Collateral to the Company or its
nominee and receive, endorse and give receipt for, or collect by legal
proceedings or otherwise, dividends or other distributions made or paid with
respect to the Collateral, provided and only if there exists at the time an
outstanding event of default under Section 8 of this Agreement.
The Company will notify the Stockholder of any action taken by the Company
pursuant to the provisions of this Section 3. Expenses reasonably incurred in
connection with such action shall by payable by the Stockholder and form part of
the indebtedness secured hereunder as provided in Section 10.
So long as there exists no event of default under Section 8 of this
Agreement, the Stockholder may exercise all voting rights and be entitled to
receive any and all regular cash dividends paid on the Collateral. Accordingly,
until such time as an event of default occults under this Agreement, all proxy
statements and other Stockholder materials pertaining to the Collateral shall be
delivered to the Stockholder.
Any cash sums that the Company may receive in the exercise of its rights
and powers under Section 3(b) above shall be applied to the payment of the Note
and other indebtedness secured hereunder, in such order of application as the
Company deems appropriate. Any remaining cash shall be paid over to the
Stockholder.
4. DUTY TO DELIVER. Any new, additional or different securities that may
now or hereafter become distributable with respect to the Collateral by reason
of (i) any stock divided, stock split or reclassification of the Common Stock of
the Company, or (ii) any merger, consolidation or other reorganization affecting
the capital structure of the Company, shall, upon receipt by the Stockholder, be
promptly delivered to and deposited with the Company as part of the Collateral
hereunder. Such securities shall be accompanied by one or more properly
endorsed stock power assignments.
5. CARE OF COLLATERAL. The Company shall exercise reasonable care in the
custody and preservation of the Collateral, but shall have no obligation to
initiate any action with respect to any conversion, call, exchange right,
preemptive, subscription right, purchase offer or other right or privilege
relating to or affecting the Collateral. The Company shall have no duty to
reserve the rights of the Stockholder against adverse claims or to protect the
Collateral against the possibility of a decline in market value. The Company
shall not be obligated to take any action with respects to the Collateral
requested by the Stockholder unless the request is made in writing and the
Company determines that there requested action will not unreasonably jeopardize
the value of the Collateral as security for the Note and other indebtedness
secured hereunder.
The Company may at any time release and deliver all or part of the
Collateral to the Stockholder, and the receipt thereof by the Stockholder shall
constitute a complete and full
-2-
<PAGE>
acquittance for the Collateral so released and delivered. The Company shall
accordingly be discharged from any further liability or responsibility for
the Collateral, and the released Collateral shall no longer be subject to the
provisions of this Agreement. However, any and all release of the Collateral
shall be effected in compliance with the applicable limitations of Sections
7(c) and 7(e).
6. PAYMENT OF TAXES AND OTHER CHANGES. The Stockholder shall pay, prior
to the delinquency date, all taxes, liens, assessments and other charges against
the Collateral, and in the event of the Stockholder's failure to do so, the
Company may at is election pay any or all of such taxes and charges without
contesting the validity or legality thereof. The payment so made shall become a
part of the indebtedness secured hereunder and until paid shall bear interest at
the Company's interest rate then being earned by the Company on its deposits.
7. RELEASE OF COLLATERAL. Provided (i) all indebtedness secured
hereunder (other than payments not yet due and payable under the Note) shall at
the time have been paid in full or cancelled, (ii) there does not otherwise
exist any event of default under Section 8, the pledge shares of Common Stock
together with any additional Collateral that may hereafter be pledged and
deposited hereunder, shall be released from pledge and returned to the
Stockholder in accordance with the following provisions:
(a) Upon payment or prepayment of principal under the Note, together
with payment of all accrued interest to date, one or more shares of the Common
Stock held as Collateral hereunder shall (subject to the applicable limitations
of Sections 7(c) and 7(e) below) be released to the Stockholder within three
days after such payment or prepayment. The number of the shares to be released
shall be equal to the number obtained by multiplying (i) the total number of
shares of Common Stock held under this Agreement at the time of the payment or
prepayment, by (ii) a fraction the numerator of which shall be the amount of the
principal paid or prepaid and the denominator of which shall be the unpaid
principal balance of the Note immediately prior to such payment or prepayment.
In no event, however, shall any fractional shares be released.
(b) Any additional Collateral that may hereafter be pledged and
deposited with the Company (pursuant to the requirements of Section 4) with
respect to the shares of Common Stock pledged hereunder shall be released at the
same time the particular shares of Common Stock to which the additional
Collateral relates are to be released in accordance with the applicable
provisions of Section 7(a). Under no circumstances, however, shall any shares
of Common Stock or any other Collateral be released if previously applied to the
payment of any indebtedness secured hereunder.
(c) In no event, however, shall any shares of Common Stock be
released pursuant to the provisions of Section 7(a) or 7(b) if, and to the
extent, the fair market value of the Common Stock and all other Collateral that
would otherwise remain in pledge hereunder after such release were effected
would be less than one hundred fifty percent (150%) of the unpaid balance of the
Note (principal and accrued interest).
(d) For all valuation purposes under this Agreement, the fair market
value per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions:
-3-
<PAGE>
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded in the over-the-counter market, the
fair market value shall be the average of the highest bid and lowest asked
prices (or, if such information is available, the closing selling price) per
share of Common Stock on the date in question in the over-the-counter market, as
such prices are reported by the National Association of Securities Dealers on
the NASDAQ National Market or any successor system. If there are no reported
bid and asked prices (or closing selling price) for the Common Stock on the date
in question, then the average of the highest bid price and lowest asked price
(or the closing selling price) on the last preceding date for which such
quotations exist shall be determinative of fair market value.
(ii) If the Common Stock at the time listed or admitted to
trading on any stock exchange, than the fair market value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange serving as the primary market for the Common Stock, as such price is
officially quoted on the composite tape of transactions on such exchange. If
there is no reported sale of Common Stock on such exchange on the date in
question, then the fair market value shall be the closing selling price on the
exchange on the last preceding date for which such quotation exists.
(iii) If the Common Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, then the fair market value shall be the most current value per share
determined in good faith by the Company's Board of Directors.
(e) In the event the securities constituting the Collateral are
"margin securities" (within the meaning of Section 207.0(i) of Regulation G of
the Federal Reserve Board), then, to the extent applicable, the number of shares
to be released pursuant to Section 7(a) or 7(b) shall be reduced to the extent
necessary to comply with Regulation G.
8. EVENTS OF DEFAULT. The occurrence of one or more of the following
events shall constitute an event of default under this Agreement:
(a) the failure of the Stockholder to pay the principal and accrued
interest when due under the Note; or
(b) the failure of the Stockholder to perform a material obligation
imposed upon the Stockholder by reason of this Agreement and the failure to cure
such default within fifteen days or written notice of the Company to the
Stockholder.
Upon the occurrence of any event of default, the Company may, at its
election, declare the Note and all other indebtedness secured hereunder to
become immediately due and payable and may exercise any or all of the rights and
remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as on or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder. Anything herein to the contrary notwithstanding, the Company
agrees to pursue its rights to foreclose and dispose of the Collateral pursuant
to the applicable provisions of the California Uniform Commercial Code prior to
seeking recourse against the Stockholder, or any other assets of the Stockholder
-4-
<PAGE>
Any proceeds realized from the disposition of the Collateral pursuant to
the foregoing power of sale shall be applied first to the payment of reasonable
expenses incurred by the Company in connection with the disposition, then to the
payment of the Note and finally to any other indebtedness secured hereunder.
Any surplus proceeds shall be paid over to the Stockholder. However, in the
event such proceeds prove insufficient to satisfy all obligations of the
Stockholder under the Note, then the Stockholder shall remain personally liable
for the resulting deficiency.
9. OTHER REMEDIES. The rights, powers and remedies granted to the
Company and the Stockholder pursuant to the provisions of this Agreement shall
be in addition to all rights, powers and remedies granted to the Company and the
Stockholder under any statute or rule of law. Any forbearance, failure or delay
by the Company or the Stockholder in exercise any right, power or remedy under
this Agreement shall not be deemed to be a waiver of such right, power or
remedy. Any single or partial exercise of any right, power or remedy under this
Agreement shall not preclude the further exercise thereof, and every right,
power and remedy of the Company and the Stockholder under this Agreement shall
continue in full force and effect unless such right power or remedy is
specifically waived by an instrument executed by the Company or the Stockholder,
as the case may be.
10. COSTS AND EXPENSES. All reasonable costs and expenses (including
reasonable attorneys' fees) incurred by the Company in the exercise or
enforcement of any right, power or remedy granted it under this Agreement shall
become part of the indebtedness secured hereunder and shall constitute an
personal liability of the Stockholder payable immediately upon demand.
11. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California and shall be binding upon
the executors, administrators, heirs and assigns of the Stockholder.
12. ARBITRATION. Any controversy between the parties hereto involving the
construction or application of any terms, covenants or conditions of this
Agreement or the Note, of any claims arising out of or relating to this
Agreement or the Note, or the breach hereof or thereof, will be submitted to and
settled by final and binding arbitration in Orange County, California, in
accordance with the rules of the American Arbitration Association then in
effect, and judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. In the event of arbitration under this
Agreement or the Note, the prevailing party shall be entitled to recover from
the losing party reasonable expenses, attorneys' fees, and costs incurred
therein or in the enforcement or collection of any judgment or award rendered
therein. The "prevailing party" means the party determined by the arbitrator to
have most nearly prevailed, even if such party did not prevail in all matters,
necessarily the one in whose favor a judgment is rendered.
13. SEVERABILITY. If any provision of this Agreement is held to be
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and neither the remainder of such provision or
this Agreement shall be affected thereby.
-5-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Stock Pledge
Agreement as of the date first written above.
PRINTRAK INTERNATIONAL INC.
By: /s/ David L. McNeff
---------------------------------------------
Its: /s/ John Hardy
--------------------------------------------
/s/ Richard M. Giles
-------------------------------------------------
Richard Giles, Trustee of the Giles Living Trust
UDT
dated December 17, 1993
-6-
<PAGE>
EXHIBIT 10.20
[UNION BANK OF CALIFORNIA LETTERHEAD]
November 5, 1998
Ms. Susanna Bennett
Vice President Finance and Corporate Secretary
Printrak International, Inc.
1250 North Tustin Avenue
Anaheim, CA 92807
Re: First Amendment ("Amendment") to the Amended and Restated Agreement dated
July 31, 1998 (this Amendment, and the Amended and Restated Loan
Agreement together called the "Agreement")
Dear Susanna:
In reference to the Agreement between Union Bank of California, N.A.
("Bank") and Printrak International Inc. ("Borrower"), the Bank and Borrower
desire to amend the Agreement. Capitalized terms used herein which are not
otherwise defined shall have the meaning given them in the Agreement.
AMENDMENTS TO THE AGREEMENT:
(a) Section 1.1.1, line 5 of the Agreement is hereby amended by
substituting the date "January 4, 2000" for the date "August 2, 1999."
(b) Section 1.1.1.1, line 10 of the Agreement is hereby amended by
substitution the date "January 4, 2000" for the date "August 2, 1999."
Except as specifically amended hereby, the Agreement shall remain in
full force and effect and is hereby ratified and confirmed. This Amendment
shall not be a waiver of any existing or future default or breach of a
condition or covenant unless specified herein.
This Amendment shall become effective when the Bank shall have received
the acknowledgment copy of this Amendment executed by the Borrower and the
following executed documents plus an amendment fee of Seven Thousand Five
Hundred Dollars ($7,500.00), all of which must be received before
November 6, 1998.
Very truly yours,
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Stephen Dunne
---------------------------
Title: Vice President/SCE
---------------------------
By: /s/ Burt Yano
---------------------------
Title: Senior Vice President
---------------------------
Agreed and Accepted to this 5th day of
November, 1998.
PRINTRAK INTERNATIONAL, INC.
By: /s/ Susanna Bennett
---------------------------
Title: Vice President Finance
and Corporate Secretary
---------------------------
<PAGE>
EXHIBIT 10.22
UNION
BANK OF
CALIFORNIA
PROMISSORY NOTE
(BASE RATE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Borrower Name PRINTRAK INTERNATIONAL INC.
- -------------------------------------------------------------------------------
Borrower Address Office 45061 Loan Number 7144705187 0081-00-0-000
1250 NORTH TUSTIN AVE. ---------------------------------------------------
ANAHEIM, CA 92807 Maturity Date January 4, 2000 Amount $15,000,000.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$15,000,000.00 Date NOVEMBER 2, 1998
- -------------- -----------------------
FOR VALUE RECEIVED, on JANUARY 4, 2000, the undersigned ("Debtor") promises
to pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated
below, the principal sum of FIFTEEN MILLION AND NO/100 Dollars
($15,000,000.00), or so much thereof as is disbursed, together with interest
on the balance of such principal from time to time outstanding, at the per
annum rate or rates at the times set forth below.
1. INTEREST PAYMENTS. Debtors shall pay interest on the 2ND day of each MONTH
(commencing DECEMBER 2, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year
of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
in minimum amounts of at least $500,000.00 shall bear interest at a rate
which is equal to Bank's LIBOR Rate for the Interest Period selected by
Debtor, plus the Applicable Margin.
No Base Interest Rate may be changed, altered or otherwise modified
until the expiration of the Interest Period selected by Debtor. The
exercise of interest rate options by Debtor shall be as recorded in
Bank's records, which records shall be prima facie evidence of the
amount borrowed under either interest option and the interest rate;
provided, however, that failure of Bank to make any such notation in
its records shall not discharge Debtor from its obligations to repay
in full with interest all amounts borrowed. In no event shall any
Interest Period extend beyond the maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and
on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing, select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time,
on any Business Day and advising that officer of the selected index, the
Interest Period and the Origination Date selected (which Origination
Date, for a Base Interest Rate Loan based on the LIBOR-Rate, shall
follow the date of such selection by no more than two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not effect Bank's rights to collect interest at the
rate selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves
the right to fund the principal from any source of funds notwithstanding
any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum equal to the Reference Rate plus the Applicable Margin,
which rate shall vary as and when the Reference Rate or the Applicable
Margin, as the case may be, changes.
At any time prior to the maturity of this note, subject to the
provisions of paragraph 4, below, of this note, Debtor may borrow, repay
and reborrow hereon so long as the total outstanding at any one time
does not exceed the principal amount of this note. Debtor shall pay all
amounts due under this note in lawful money of the United States at
Bank's ORANGE COUNTY COMMERCIAL BANKING Office, or such other office as
may be designated by Bank, from time to time.
PN-REV(LIBOR-RR) -1-
1/30/98
<PAGE>
2. LATE PAYMENTS. If any payments required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five
percent (5%) in excess of the interest rate specified in paragraph 1.b,
above, calculated from the date of default until all amounts payable
under this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notice of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including acceleration
or foreclosure, receives all or any portion of principal bearing
interest at a Base Interest Rate prior to its scheduled payment date.
Liquidated Damages shall be an amount equal to the present value of the
product of: (i) the difference (but not less than zero) between (a) the
Base Interest Rate applicable to the principal amount which is being
prepaid, and (b) the return which Bank could obtain if it used the
amount of such prepayment of principal to purchase at bid price
regularly quoted securities issued by the United States having a
maturity date most closely coinciding with the relevant Base Rate
Maturity Date and such securities were held by Bank until the relevant
Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the numerator
of which is the number of days in the period between the date of
prepayment and the relevant Base Rate Maturity Date and the denominator
of which is 360; and (iii) the amount of the principal so prepaid
(except in the event that principal payments are required and have been
made as scheduled under the terms of the Base Interest Rate Loan being
prepaid, then an amount equal to the lesser of (A) the amount prepaid or
(B) 50% of the sum of (1) the amount prepaid and (2) the amount of
principal scheduled under the terms of the Base Interest Rate Loan being
prepaid to be outstanding at the relevant Base Rate Maturity Date).
Present value under this note is determined by discounting the above
product to present value using the Yield Rate as the annual discount
factor.
b. In no event shall Bank be obligated to make any payment or refund
to Debtor, nor shall Debtor be entitled to any setoff or other claim
against Bank, should the return which Bank could obtain under this
prepayment formula exceed the interest that Bank would have received if
no prepayment had occurred. All prepayments shall include payment of
accrued interest on the principal amount so prepaid and shall be applied
to payment of interest before application to principal. A determination
by Bank as to the prepayment fee amount, if any, shall be conclusive.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Loan for the entire Interest Period, and (ii) any prepayment
may result in Bank incurring additional costs, expenses or liabilities;
and Debtor agrees to pay these liquidated damages as a reasonable
estimate of the costs, expenses and liabilities of Bank associated with
such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but
not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note when due; (b) any breach,
misrepresentation or other default by Debtor, any guarantor, co-maker,
endorser, or any person or entity other than Debtor providing security for
this note (hereinafter individually and collectively referred to as the
"Obligor") under any security agreement, guaranty or other agreement between
Bank and any Obligor; (c) the insolvency of any Obligor or the failure of any
Obligor generally to pay such Obligor's debts as such debts become due; (d)
the commencement as to any Obligor of any voluntary or involuntary proceeding
under any laws relating to bankruptcy, insolvency, reorganization,
arrangement, debt adjustment or debtor relief; (e) the assignment by any
Obligor for the benefit of such Obligor's creditors; (f) the appointment, or
commencement of any proceeding for the appointment of a receiver, trustee,
custodian or similar official for all or substantially all of any Obligor's
property; (g) the commencement of any proceeding for the dissolution or
liquidation of any Obligor; (h) the termination of existence or death of any
Obligor; (i) the revocation of any guaranty or subordination agreement given
in connection with this note; (j) the failure of any Obligor to comply with
any order, judgement, injunction, decree, writ or demand of any court or
other public authority; (k) the filing or recording against any Obligor, or
the property of any Obligor, of any notice of levy, notice to withhold, or
other legal process for taxes other than property taxes; (l) the default by
any Obligor personally liable for amounts owed hereunder on any obligation
concerning the borrowing of money; (m) the issuance against any Obligor, or
the property of any Obligor, of any writ of attachment, execution, or other
judicial lien; or (n) the deterioration of the financial condition of any
Obligor which results in Bank deeming itself, in good faith, insecure. Upon
the occurrence of any such default, Bank, in its discretion, may cease to
advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of
default under d, e, f, or g, all principal and interest shall automatically
become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note
are not paid when due, Debtor promises to pay all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in the collection
or enforcement of this note. Debtor and any endorsers of this note, for
the maximum period of time and the full extent permitted by law, (a)
waive diligence, presentment, demand, notice of nonpayment, protest,
notice of protest, and notice of every kind; (b) waive the right to
assert the defense of any statute of limitations to any debt or
obligation hereunder; and (c) consent to renewals and extensions of time
for the payment of any amounts due under this note. If this note is
signed by more than one party, the term "Debtor" includes each of the
undersigned and any successors in interest thereof; all of whose
liability shall be joint and several. Any married persons who signs this
note agrees that recourse may be had against the separate property of
that person for any obligations hereunder. The receipt of any check or
other item of payment by Bank, at its option, shall not be considered a
payment on account until such check or other item of payment is honored
when presented for payment at the drawee bank. Bank may delay the credit
of such payment based upon Bank's schedule of funds availability, and
interest under this note shall accrue until the funds are deemed
collected. In any action brought under or arising out of this note,
Debtor and any Obligor, including their successors and assigns, hereby
consent to the jurisdiction of any competent court within the State of
PN-REV(LIBOR-RR) -2-
1/30/98
<PAGE>
California, as provided in any alternative dispute resolution agreement
executed between Debtor and Bank, and consent to service of process by
any means authorized by said state's law. The term "Bank" includes,
without limitation, any holder of this note. This note shall be
construed in accordance with and governed by the laws of the State of
California. This note hereby incorporates any alternative dispute
resolution agreement previously, concurrently or hereafter executed
between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "Agreement" means that certain Amended and
Restated Loan Agreement, of even date herewith, by and between Debtor and
Bank, as at any time amended, supplanted or otherwise modified or restated.
"Applicable Margin" means (1) in the case of a Base Interest Rate Loan, a per
annum rate equal to (a) 2.75%, if the ratio of Debtor's total liabilities to
Tangible Net Worth (as such term is defined in the Agreement) (the "Leverage
Ratio") as at the end of the most recent calendar month in respect of which
Debtor has furnished a financial statement to Bank as required by the
Agreement (the "Reported Period") is equal to or greater than 2.25:1.00, (b)
2.50%, if the Leverage Ratio as at the end of the most recent Reported Period
is less than 2.25:1.00 but equal to or greater than 2.00:1.00, (c) 2.25%, if
the Leverage Ratio as at the end of the most recent Reported Period is less
than 2.00:1.00 but equal to or greater than 1.75:1.00; (d) 2.00% if the
Leverage Ratio as at the end of the most recent Reported Period is less than
1.75:1.00 but equal to or greater than 1.50:1.00, and (e) 1.75%, if the
Leverage Ratio as at the end of the most recent Reported Period is less than
1.50:1.00; and (2) in the case of principal amounts outstanding hereunder
that are bearing interest at a rate based upon the Reference Rate, a per
annum rate equal to (a) 0.25%, if the Leverage Ratio as at the end of of the
most recent Reported Period is less than 2.25:1.00, and (b) 0.00%, if the
Leverage Ratio as at the end of the most recent Reported Period is less than
2.25:1.00. A change in the Applicable Margin resulting from a change in the
Leverage Ratio shall become effective on the first day of the calendar month
following the Reported Period in respect of which a financial statement
furnished by Debtor to Bank pursuant to the Agreement reflects a change in
the Leverage Ratio which requires a change in the Applicable Margin as
provided for herein. For the purpose of determining the Applicable Margin, if
a default under this note or an Event of Default (as such term is defined in
the Agreement) has occurred and is continuing (including without limitation a
default or an Event of Default resulting from the failure of Debtor to
furnish any financial statement to Bank as required by the Agreement), then
without waiving any right or remedy that Bank may have under the Agreement as
a result of such default or Event of Default (including without limitation
the rights to accelerate Debtor's obligations and invoke the default interest
rate), the Leverage Ratio shall be conclusively presumed to be equal to or
greater than 2.25:1.00 from the date of the occurrence of such default or
Event of Default until such default or Event of Default is cured or otherwise
waived by Bank. "Base Interest Rate" means a rate of interest based on the
LIBOR-Rate. "Base Interest Rate Loan" means amounts outstanding under this
note that bear interest at a Base Interest Rate. "Base Rate Maturity Date"
means the last day of the Interest Period with respect to principal
outstanding under a Base Interest Rate Loan. "Business Day" means a day on
which Bank is open for business for the funding of corporate loans, and, with
respect to the rate of interest based on the LIBOR Rate, on which dealings in
U.S. dollar deposits outside of the United States may be carried on by Bank.
"Interest Period" means with respect to funds bearing interest at a rate
based on the LIBOR Rate, any calendar period of one, three, six, nine or
twelve months. In determining an Interest Period, a month means a period that
starts on one Business Day in a month and ends on and includes the day
preceding the numerically corresponding day in the next month. For any month
in which there is no such numerically corresponding day, then as to that
month, such day shall be deemed to be the last calendar of such month. Any
Interest Period which would otherwise end on a non-Business Day shall end on
the next succeeding Business Day unless that is the first day of a month, in
which event such Interest Period shall end on the next preceding Business
Day. "LIBOR Rate" means a per annum rate of interest (rounded upward, if
necessary, to the nearest 1/100 of 1%) at which dollar deposits, in
immediately available funds and in lawful money of the United States would be
offered to Bank, outside of the United States, for a term coinciding with the
Interest Period selected by Debtor and for an amount equal to the amount of
principal covered by Debtor's interest rate selection, plus Bank's costs,
including the costs, if any, of reserve requirements. "Origination Date"
means the first day of Interest Period. "Reference Rate" means the rate
announced by Bank from time to time at its corporate headquarters as its
Reference Rate. The Reference Rate is an index rate determined by Bank from
time to time as a means of pricing certain extensions of credit and is
neither directly tied to any external rate of interest or index nor
necessarily the lowest rate of interest charged by Bank at any given time.
PRINTRAK INTERNATIONAL INC.
- -----------------------------------
By /s/ Susanna Bennett
Vice President Finance and
Corporate Secretary
--------------------------------
TITLE
PN-REV(LIBOR-RR) -3-
1/30/98
<PAGE>
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF PRINTRAK INTERNATIONAL INC.
As of March 31, 1997, Printrak International Inc. (the "Company") had one
subsidiary, Printrak Limited. On May 7, 1997, the Company acquired TFP, Inc. a
South Carolina corporation, which became a wholly-owned subsidiary of the
Company. On September 9, 1997, SunRise Imaging, a California corporation, was
acquired and became a wholly owned subsidiary of the Company. On December 1,
1997, the Company established Printrak International PTYLTD, in Australia, as a
wholly-owned subsidiary of the Company. On December 11, 1998, the Company
established Printrak de Argentina S.R.L, in Argentina, as a wholly-owned
subsidiary of the Company.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-47009, 333-38277 and 333-38275 on Form S-8 of our report dated June 9, 1999
appearing in this Annual Report on Form 10-K of Printrak International, Inc. for
the year ended March 31, 1999.
DELOITTE & TOUCHE LLP
Costa Mesa, California
June 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 8,557,000
<SECURITIES> 0
<RECEIVABLES> 30,622,000
<ALLOWANCES> (627,000)
<INVENTORY> 8,245,000
<CURRENT-ASSETS> 53,337,000
<PP&E> 12,570,000
<DEPRECIATION> (8,467,000)
<TOTAL-ASSETS> 65,302,000
<CURRENT-LIABILITIES> 32,121,000
<BONDS> 180,000
0
0
<COMMON> 1,000
<OTHER-SE> 33,000,000
<TOTAL-LIABILITY-AND-EQUITY> 65,302,000
<SALES> 71,195,000
<TOTAL-REVENUES> 86,433,000
<CGS> 39,774,000
<TOTAL-COSTS> 79,597,000
<OTHER-EXPENSES> (384,000)
<LOSS-PROVISION> (476,000)
<INTEREST-EXPENSE> 540,000
<INCOME-PRETAX> 7,156,000
<INCOME-TAX> (4,152,000)
<INCOME-CONTINUING> 11,308,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,308,000
<EPS-BASIC> 1.00
<EPS-DILUTED> .96
</TABLE>
