<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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.
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(Exact name of registrant as specified in its charter)
Delaware 33-0070547
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 North Tustin Avenue Anaheim, California 92807
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(714) 238-2000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
x Yes No
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11,651,169 shares of the issuer's common stock, par value $0.0001 per
share, were outstanding as of October 29, 1999.
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<PAGE>
FORM 10-Q
CONTENTS
<TABLE>
<CAPTION>
Page Number
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PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1999 (unaudited)
and March 31, 1999...................................................................... 1
Unaudited Consolidated Statements of Operations for the three month
periods ended September 30, 1999 and 1998............................................... 2
Unaudited Consolidated Statements of Operations for the six month
periods ended September 30, 1999 and 1998............................................... 3
Unaudited Consolidated Statements of Cash Flows for the six month
periods ended September 30, 1999 and 1998............................................... 4
Notes to the Unaudited Consolidated Financial Statements................................ 5
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................... 7
Item 3: Quantitative and Qualitative Disclosures about Market Risk...................... 14
PART II - OTHER INFORMATION
Item 1: Legal Proceedings............................................................... 15
Item 2: Changes in Securities and Use of Proceeds....................................... 15
Item 3: Defaults upon Senior Securities................................................. 15
Item 4: Submission of Matters to a Vote of Security Holders............................. 15
Item 5: Other Information............................................................... 15
Item 6: Exhibits and Reports on Form 8-K................................................ 16
Signature ............................................................................. 17
</TABLE>
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PRINTRAK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 1999 AND MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
September March 31,
30, 1999 1999
(unaudited) audited
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................... $9,484 $8,557
Accounts receivable, net (Note 2)................................................. 28,700 29,995
Inventories, net (Note 3)......................................................... 11,762 8,245
Prepaid expenses and other current assets......................................... 1,858 1,333
Deferred income taxes............................................................. 5,207 5,207
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Total current assets.......................................................... 57,011 53,337
Notes receivable from related parties................................................. 697 74
Property, plant and equipment - net .................................................. 3,771 4,103
Deferred income taxes................................................................. 3,896 3,820
Other long-term assets................................................................ 1,339 1,638
Goodwill and other intangible assets, net............................................. 3,303 2,330
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TOTAL ASSETS $70,017 $65,302
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $4,896 $ 8,879
Accrued wages and employee benefits.............................................. 3,391 1,990
Other accrued liabilities........................................................ 8,310 7,508
Current portion of long-term debt ............................................... 128 122
Deferred revenue................................................................. 12,591 12,704
Income taxes payable............................................................. 2,830 918
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Total current liabilities 32,146 32,121
Long-term debt, less current portion ................................................ 132 180
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Total liabilities......................................................... 32,278 32,301
STOCKHOLDERS' EQUITY:
Common stock ($.0001 par value; 20,000,000 shares authorized;
11,638,578 and 11,406,043 shares issued and outstanding)......................... 1 1
Additional paid-in capital....................................................... 20,001 18,886
Retained earnings................................................................ 17,946 14,360
Note receivable from stockholder................................................. (300) (300)
Accumulated other comprehensive income........................................... 91 54
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Total stockholders' equity.................................................... 37,739 33,001
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TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 70,017 $ 65,302
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</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1
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PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months Three months
ended ended
September 30, September 30,
1999 1998
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<S> <C> <C>
REVENUES:
System........................................................................ $22,741 $16,623
Maintenance................................................................... 4,562 3,578
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Total revenues ........................................................... 27,303 20,201
COST OF REVENUES:
System........................................................................ 14,561 8,998
Maintenance................................................................... 2,901 2,708
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Total cost of revenues ................................................... 17,462 11,706
Gross profit.............................................................. 9,841 8,495
OPERATING EXPENSES:
Research, development and engineering......................................... 1,595 1,773
Selling, general and administrative .......................................... 5,369 5,300
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Total operating expenses.................................................. 6,964 7,073
Operating income.......................................................... 2,877 1,422
Other income.................................................................. 201 54
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Income before provision for income taxes.................................. 3,078 1,476
Provision for income taxes.................................................... 1,235 517
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Net income................................................................ $1,843 $959
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Net income per common share:
Basic..................................................................... $.16 $.08
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Diluted................................................................... $.16 $.08
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</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2
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PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six months Six months
ended ended
September 30, September 30,
1999 1998
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<S> <C> <C>
REVENUES:
System........................................................................ $44,032 $29,216
Maintenance................................................................... 9,823 7,422
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Total revenues ........................................................... 53,855 36,638
COST OF REVENUES:
System........................................................................ 28,088 15,235
Maintenance................................................................... 6,629 5,610
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Total cost of revenues ................................................... 34,717 20,845
Gross profit.............................................................. 19,138 15,793
OPERATING EXPENSES:
Research, development and engineering......................................... 2,861 3,853
Selling, general and administrative .......................................... 10,568 9,938
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Total operating expenses.................................................. 13,429 13,791
Operating income.......................................................... 5,709 2,002
Other (expense) income........................................................ 280 (161)
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Income before provision for income taxes.................................. 5,989 1,841
Provision for income taxes.................................................... 2,408 644
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Net income................................................................ $3,581 $1,197
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Net income per common share:
Basic..................................................................... $.31 $.11
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Diluted................................................................... $.30 $.10
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</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months Six months
ended ended
September 30, September 30,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income................................................................ $3,581 $1,197
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................. 1,527 1,702
Loss on sale of fixed assets.............................................. 24 179
Changes in operating assets and liabilities:
Accounts receivable, net............................................... 1,295 714
Inventories, net....................................................... (3,517) (531)
Prepaid expenses and other current assets.............................. (599) 524
Accounts payable ...................................................... (3,985) 855
Accrued liabilities.................................................... 1,352 (2,373)
Deferred revenue....................................................... (133) 1,586
Income taxes payable................................................... 1,907 -
Other.................................................................. 1,143 622
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Net cash provided by operating activities................................. 2,595 4,475
Cash flows from investing activities:
Capital expenditures...................................................... (903) (719)
Increase in other long-term & intangible assets........................... (1,300) -
Proceeds from the sale of property, plant and equipment................... 2 5
Net proceeds from notes receivable........................................ - 492
Notes receivable from related parties..................................... (623) -
Sale of short-term investments ........................................... (3) 1,114
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Net cash (used in) provided by investing activities....................... (2,827) 892
Cash flows from financing activities:
Principal repayments on long-term debt.................................... (43) (8,979)
Proceeds from common stock issuance....................................... 1,115 270
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Net cash provided by (used in) by financing activities................. 1,072 (8,709)
Effect of exchange rate changes on cash balances.............................. 87 32
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Net change in cash and cash equivalents...................................... 927 (3,310)
Cash and cash equivalents, beginning of year.................................. 8,557 3,763
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Cash and cash equivalents, end of period...................................... $9,484 $453
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Non-cash transaction-transfer of inventory to (from) fixed assets - (100)
Supplemental disclosure of cash flow information:
Interest paid ........................................................... $20 $408
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Income taxes paid........................................................ $628 $57
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</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
GENERAL BUSINESS
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.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC").
The unaudited consolidated financial statements reflect all adjustments, which
are normal and recurring in nature, and which in the opinion of management are
necessary to a fair statement of the financial position and results of
operations as of September 30, 1999 and for the three month and six month
periods ended September 30, 1999 and 1998. The results of operations for the
three month and six month periods ended September 30, 1999 are not necessarily
indicative of the results of operations for the entire fiscal year ending March
31, 2000. These consolidated financial statements and related footnotes should
be read in conjunction with the consolidated financial statements and related
footnotes presented in the Company's 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
REVENUE RECOGNITION - In October 1998, the AICPA issued SOP 97-2, "Software
Revenue Recognition" which later in part was amended by SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2". These statements supersede SOP
91-1 under which the Company has previously been recognizing revenue. The
Company adopted SOP 97-2 for transactions entered into beginning April 1, 1998.
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. A majority
of the Company's contracts include a combination of the following elements:
hardware, software, license fees, installation, program modifications, file
conversion, training, and customer support. For such contracts, revenue must be
allocated to each component based on vendor specific objective evidence of the
components' fair value. Revenue allocated to undelivered products is recognized
as the above criteria are met; revenue for services is recognized as services
are performed or, for maintenance agreements, ratably over the life of the
related contract. Cash payments for systems sales or maintenance received in
advance of revenue recognition are accounted for as deferred revenue. For those
contracts which have been considered long-term contracts due to a significant
amount of customization, the Company recognizes revenue on a percentage of
completion basis.
5
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COMPREHENSIVE INCOME - Effective April 1, 1999, the Company has adopted SFAS No.
130, REPORTING COMPREHENSIVE INCOME. This statement establishes standards for
the reporting of comprehensive income and its components. Comprehensive income,
as defined, includes all changes in equity (net assets) during a period from
nonowner sources. For the three month and six month periods ending September 30,
1999, the difference between net income, as reported, and comprehensive income
was approximately $25,000.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
September March 31,
30, 1999 1999
(unaudited)
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<S> <C> <C>
Billed receivables.................................................. $ 20,419 $ 22,626
Unbilled receivables................................................ 8,882 7,996
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29,301 30,622
Less allowance for doubtful accounts................................ (601) (627)
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$ 28,700 29,995
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</TABLE>
Unbilled receivables consist of system and maintenance revenues which have been
earned but not invoiced because of contractual terms of the underlying
agreements.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September March 31,
30, 1999 1999
(unaudited)
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<S> <C> <C>
Raw materials....................................................... $ 3,929 $ 4,678
Work in progress.................................................... 8,625 4,114
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12,554 8,792
Less allowance for inventory obsolescence and revaluation........... (792) (547)
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$ 11,762 8,245
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</TABLE>
6
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PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTORY NOTE
This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. Words
such as "anticipates", "expects", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements, which include (i) the existence and
development of the Company's technical and manufacturing capabilities, (ii)
anticipated competition, (iii) potential future growth in revenues and income,
(iv) potential future decreases in costs, and (v) the need for, and availability
of, additional financing.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements are based on assumptions that the Company's markets will continue to
grow, that the Company's products will remain accepted within their respective
markets and will not be replaced by new technology, that competitive conditions
within the Company's markets will not change materially or adversely, that the
Company will retain key technical and management personnel, that the Company's
forecasts will accurately anticipate market demand, and that there will be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
The following is management's discussion and analysis of certain significant
factors which have affected the earnings and financial position of the Company
during the period included in the accompanying financial statements. This
discussion compares the three month period ended September 30, 1999 with the
three month period ended September 30, 1998, as well as the six month period
ended September 30, 1999 with the six month period ended September 30, 1998.
This discussion should be read in conjunction with the financial statements and
associated notes.
7
<PAGE>
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTH PERIOD
ENDED SEPTEMBER 30, 1998
TOTAL REVENUES
Our total revenues are comprised of system revenues, which include products,
file conversion, data mapping services and system installations, and maintenance
revenues related to hardware and software support.
Our total revenues increased 35.2% to $27.3 million for the quarter ended
September 30, 1999, compared to $20.2 million for the quarter ended September
30, 1998.
System revenues increased $6.1 million or 36.8% to $22.7 million for the
second quarter from $16.6 million for the second quarter of the previous year.
System revenues related to the Argentina civil identification contract totaled
$1.9 million for the quarter. Maintenance revenues increased to $4.6 million
or 27.5% of total revenue for the quarter ended September 30, 1999, compared
to revenues of $3.6 million for the quarter ended September 30, 1998. The
increase in maintenance revenues is reflective of an overall expansion of the
customer base over the prior year.
Our quarterly revenues have in the past, and in the future, may be expected to
fluctuate significantly. These fluctuations are the result of a variety of
factors, including: our delivery cycle, variations in order size, variations in
product mix, and the timing of orders.
GROSS PROFIT
Cost of revenues primarily consist of purchased materials procured for use in
the assembly of our products, manufacturing or assembly labor and overhead, file
conversion costs and data mapping costs, as well as maintenance expenses and
estimated costs to complete system installations.
Overall gross profit increased 15.8% to $9.8 million for the quarter ending
September 30, 1999, versus $8.5 million for the same period of the previous
fiscal year. Gross margin was 36.0% for the three months ended September 30,
1999, down from 42.1% for the three months ended September 30, 1998. The gross
profit for system revenues increased to $8.2 million for the quarter ended
September 30, 1999 from $7.6 million for the same quarter from the previous
fiscal year. The system gross margin decreased to 36.0% for the current quarter
from 45.9% for the second quarter of the previous fiscal year. Maintenance gross
profit increased to $1.7 million for the quarter ended September 30, 1999 from
$.9 million during the same period of the prior year. Due to better cost
controls, gross margin related to maintenance revenue increased to 36.4% for the
three months ended September 30, 1999 in comparison to 24.3% for the second
quarter of the previous year.
The decrease in system gross margin reflects the increased allocation of R&D
resources to contract specific tasks, primarily due to increased customization
for certain contracts, which is reflected in the reduction of R&D expenditures
during the three-month period, as well as lower profit margins realized due to
the product mix.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses consist principally of
compensation paid to sales, marketing, and administrative personnel, payments to
consultants, professional service fees, travel and related expenses, and other
marketing expenses.
For the three month period ended September 30, 1999, SG&A expenses increased to
$5.4 million from $5.3 million for the period ended September 30, 1998. This
$100,000 increase primarily reflects costs related to the recruitment of key
employees as part of building our infrastructure along with recording a full
quarter of costs associated with the opening of the Irvine office at the end of
April 1999. SG&A expenses, as a percentage of revenues, decreased to 19.7% for
the three months ended September 30, 1999 from 26.2% for the three months ended
September 30, 1998.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses (RD&E) are comprised primarily of
compensation paid to personnel engaged in research, development and engineering
activities, amounts paid for outside services and the cost of materials used in
the development of hardware and software products.
RD&E expenses decreased 10.0% to $1.6 million for the quarter ended September
30, 1999, down from $1.8 million for the quarter ended September 30, 1998. The
decrease in RD&E expense is primarily the result of increased allocation of
resources to contract specific tasks, which are classified as cost of sales, as
well as a reduction in contract labor. RD&E expenses, as a percentage of
revenues, decreased to 5.8% for the three months ended September 30, 1999, down
from 8.8% for the same period of the previous year.
PROVISION FOR INCOME TAXES
Income tax expense for the quarter ended September 30, 1999 equaled $1.2 million
in comparison to $500,000 for the quarter ended September 30, 1998. Our tax
provision for fiscal 2000 is based on the combined federal and state statutory
rates of 40% and reflects the impact of state and foreign taxes.
SIX MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO THE SIX MONTH PERIOD
ENDED SEPTEMBER 30, 1998
TOTAL REVENUES
Our total revenues have increased 47.0% to $53.9 million for the six months
ended September 30, 1999, up from $36.6 million for the prior year. This $17.3
million revenue increase is primarily attributable to approximately $8.0 million
in systems revenues relating to the Argentina Civil ID contract and $13.3
million in revenues for CAD systems recorded during the six-month period ending
September 30, 1999. No revenues for the Argentina contract were recorded during
the six-month period ended September 30, 1998 while $6.4 million of revenues
were recorded for CAD systems for six-month period ended September 30,
1998.
9
<PAGE>
Maintenance revenue contributed $2.4 million to the increase in total
revenue for the six months ended September 30, 1999, increasing 32.3% to $9.8
million. The increase is reflective of an overall expansion of the customer base
over the prior year.
GROSS PROFIT
Overall gross profit increased 21.2% to $19.1 million for the six months ended
September 30, 1999 in comparison to $15.8 million for the prior year. Gross
margin was 35.5% for the six months ended September 30, 1999, down from 43.1%
for the same prior year period. Gross profit for system revenues increased to
$15.9 million for the six months ended September 30, 1999 from $14.0 million for
the same period of the previous fiscal year. System gross margin decreased to
36.2% for the current period from 47.9% from the same period during the prior
year. Overall maintenance gross profit increased by $2.4 million for the six
months ended September 30, 1999 from $1.8 million in the prior year to $3.2
million for the current fiscal period. Gross margin related to maintenance
revenues increased to 32.5% for the first six months of the current year in
comparison to 24.4% for the same period last year.
The decrease in system gross margin reflects the increased allocation of R&D
resources to contract specific tasks, primarily due to increased customization
for certain contracts, which is reflected in the reduction of R&D expenditures
during the six-month period, as well as lower profit margins realized due to the
product mix. The increase in maintenance gross margin is a result of the
elimination of low margin maintenance contracts we inherited through
acquisition.
RESEARCH, DEVELOPMENT AND ENGINEERING
RD&E decreased 25.7% to $2.9 million for the six-month period ended September
30, 1999 compared with $3.9 million for the same period last year. This $1.0
million decrease is primarily the result of an increased allocation of resources
to contract specific tasks, which are classified as cost of revenues, as well as
a reduction in contract labor. RD&E expenses, as a percentage of revenues,
decreased to 5.3% for the six months ended September 30, 1999, down from 10.5%
for the same period of the previous year.
10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
SG&A expenses increased 6.3% to $10.6 million for the six month period ended
September 30, 1999, compared with $9.9 million for the same period in fiscal
1999. The increase was primarily due to the increased costs of expanding the
infrastructure and the addition of the new Irvine office at the end of April
1999. SG&A expenses, as a percentage of revenues, decreased slightly to 19.6%
for the six months ended September 30, 1999 from 27.1% for the six months ended
September 30, 1998.
OTHER (EXPENSE) INCOME
Other income for the six-month period ended September 30, 1999 equaled
$280,000 in comparison to other expense of $161,000 for the six-month period
ended September 30, 1998. Other income for the period is composed primarily of
interest income of $339,000 as the debt from the prior year had been retired.
Other expense for the six-month period ended September 30, 1998 totaling
$59,000 comprised mainly of $20,000 in interest expense, $23,000 in loss on
disposition of assets, and various other expenses.
PROVISION FOR INCOME TAXES
Income tax expense for the six-month period ended September 30, 1999 equaled
$2.4 million in comparison to expense of $.6 million for the six-month period
ended September 30, 1998. Our current year tax provision is based on a statutory
rate of 40% and reflects the impact of federal, state and foreign taxes.
BACKLOG
We measure our 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, we include in backlog contract revenue not recognized at the
period end. As of September 30, 1999, our system revenue backlog approximated
$71.7 million, compared to $95.0 million as of June 30, 1999 and $35.7 million
on September 30, 1998. In addition, our maintenance/warranty revenue backlog
approximated $32.8 million as of September 30, 1999.
Orders comprising our system backlog may include requirements for custom
software development or file conversion that may require extensive resources to
be completed prior to shipment. Any failure by us to meet an agreed upon
schedule could lead to the cancellation of the related order. We believe 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. Accordingly, we believe that backlog may not be a
meaningful indicator of future financial performance.
FINANCIAL CONDITION
Cash and cash equivalents increased from $8.6 million at March 31, 1999 to $9.5
million at September 30, 1999 as a result of stronger collections and increased
emphasis on customer deposits on new contracts.
11
<PAGE>
Inventories increased from $8.2 million at March 31, 1999 to $11.8 million at
September 30, 1999. The increase was primarily due to increased deliveries of
material along with labor and overhead costs related to contracts that are
scheduled for shipment during the remainder of the fiscal year.
During the first quarter, our Chief Executive Officer and President, Richard M.
Giles, was extended a loan for $600,000 from the Company. A promissory note
accompanied the loan 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. As a result, the notes receivable from related parties
increased from $74,000 to $697,000.
The decrease in the net balance of property, plant and equipment of $300,000
from $4.1 million at March 31, 1999 to $3.8 million at September 30, 1999
reflects capital expenditures of approximately $900,000 and depreciation
expense of $1.2 million. The decrease was mainly attributable to the fact that
the accumulated depreciation exceeded capital expenditures.
The decrease in accounts payable during the six-month period of $4.0 million
is mainly attributable to more efficient processing of invoices through the
system resulting in more timely payments.
The increase in accrued wages and employee benefits is primarily the result of
the number of days of accrued payroll at March 31, 1999 versus September 30,
1999 as well as increases in headcount (from 452 to 497) during the period. The
increase in other accrued liabilities is primarily the result of increases in
management bonus provisions.
The increase in income taxes payable from $.9 million at March 31, 1999, to $2.8
million at September 30, 1999, reflects additional provision for income taxes on
net earnings during the current fiscal period.
Other intangible assets increased by approximately $1.3 million for the purchase
of the DMSC mapping software license, which is being ammortized over thirty six
months beginning July 1999.
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 $1.3 million for the six-months ended September 30, 1999
primarily through net earnings before non-cash depreciation and amortization,
partially offset by changes in operating assets and liabilities.
Our investing activities used net cash of $1.5 million for the six-month period
ended September 30, 1999 due primarily to the extension of the $600,000 note
receivable to Richard Giles and capital expenditures of $.9 million.
Financing activities provided cash of $1.1 million during the six-month period
ended September 30, 1999 as a result of proceeds from the exercise of stock
options of $1.1 million during the period.
We believe that the cash generated from operations, as well as the availability
of the revolving credit line will provide sufficient resources to fund the
Company through at least the end of calendar year 2000.
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YEAR 2000 COMPLIANCE
Many currently installed information technology ("IT") systems, such as computer
systems and software products, as well as non-IT systems that include embedded
technology, are coded to accept only two digit
entries in the date code field, and thus, were not designed to correctly process
dates after December 31, 1999. 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 three months, computer
systems and software used by many companies may need to be upgraded or are being
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 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
transitioning to systems which our vendors have represented as being Year 2000
compliant. We believe that with the remaining minor modifications and
conversions of some personal computers, the Year 2000 issue can be managed and
the associated risks mitigated. We believe that our internal critical systems
are currently Year 2000 compliant with the remaining minor modifications and
conversions to be completed before December 31, 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 have offered and will
continue to offer Year 2000 upgrades as part of the maintenance process.
Customers not under maintenance agreements or with older generation systems have
been offered and will continue to 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
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 its 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
we or 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, financial condition 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
disruption of operations at our facilities or those of our vendors and
13
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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 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
$350,000 - $400,000. The total remaining cost is estimated to be approximately
$50,000. 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 our 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 failures caused by third
parties, such as utility providers, transportation companies or others, will not
have a material adverse effect on us. We can give no assurance that Year 2000
issues will not have a material impact on our business, operating results and
financial condition.
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, beginning in the third quarter of fiscal 2000,
we will be receiving payments from our Argentinian contract in pesos. There
can be no assurance that this activity will not affect the results of our
operations and financial position, but we will be reviewing this contract's
payment activities on a regular basis.
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.
14
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PRINTRAK INTERNATIONAL INC.
PART II-OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this report, the Company is not a party to any legal proceedings, the adverse
outcome of which, in management's opinion, individually or in the aggregate,
would have a material adverse effect on the Company's results of operations or
financial position.
Item 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3 - DEFAULTS UPON SENIOR SECURITIES
None.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on August 25, 1999. Of the
11,448,638 shares of the Company's common stock issued and outstanding and
entitled to vote at the meeting, there were present at the meeting, in person or
by proxy, the holders of 9,329,961 common shares, representing 81.47% of the
total number of shares entitled to vote at the meeting. This percentage
represents a quorum. The following three proposals were presented and voted on
at the stockholders' meeting:
Proposal One: Each of the six nominees to the Board of Directors was elected for
a one-year term by the stockholders. The following directors were elected: R.
Giles, J. Hardy, D. Driscoll, C. Smith, A. Wong and P. Higgins. Subsequent to
John Hardy's election, he resigned all of his positions at Printrak on October
8, 1999.
Proposal Two: To amend the Company's 1996 Stock Incentive Plan to increase the
shares issuable pursuant to such Plan by 500,000 shares. The voting results
were: For 8,548,999; Against 772,149; Abstain 8,813; Broker Non-Vote 0.
Proposal Three: To ratify the appointment of Deloitte & Touche LLP as
independent auditors. The voting results were: For 9,317,505; Against 10,558;
Abstain 1,898; Broker Non-Vote 0.
Item 5 - OTHER INFORMATION
None
15
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Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Index:
10.1 Source Code License Agreement between DMSC Inc. and Printrak
International dated June 29, 1999
27 Financial Data Schedule
The Company did not file any current reports on Form 8-K during the quarter
ended September 30, 1999.
16
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTRAK INTERNATIONAL INC.
(REGISTRANT)
BY /s/ RICHARD M. GILES
---------------------
Name: Richard M. Giles
Title: Chief Executive Officer, President
and acting Chief Financial Officer
November 15, 1999
17
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SOURCE CODE LICENSE AGREEMENT
This Agreement is entered into this 29th day of June, 1999 by and between
DMSC INC., a Florida corporation with its principal place of business at 815
Eyrie Drive, Suite 1C, Oviedo, FL, 32765 (hereinafter "DMSC") and PRINTRAK
INTERNATIONAL INC., a Delaware corporation with its principal place of business
at 1250 North Tustin Avenue, Anaheim, CA 92807 (hereinafter "PRINTRAK"),
(collectively hereinafter the "Parties").
WHEREAS, DMSC is engaged in the business of: (1) manufacturing and
selling copyrighted computer software programs known as BaseInfo (hereinafter
"BaseInfo" or "BI"), BaseInfo AVL Server, and VehicleInfo, (hereinafter
"VehicleInfo" or "VI"), collectively referred to as the DMSC Products; and (2)
other related business activities; and
WHEREAS, PRINTRAK is engaged in the business of: (1) selling turnkey
hardware/software solutions for CAD systems; and (2) performing related
activities which may include consulting, integration with other products, and
providing technical support and training to end users; and
WHEREAS, on or about December 18, 1997, the Parties entered into a
written agreement (hereinafter the "Original Agreement") creating a strategic
alliance between them regarding the licensing and/or sublicensing of certain
DMSC products through PRINTRAK to third parties; and
WHEREAS, DMSC has fulfilled its obligations under the original agreement
and has agreed to accept and fulfill subcontract projects as enumerated in
Article 11 below, pursuant to PRINTRAK purchase orders which have either been
received by DMSC or which DMSC has tentatively agreed to accept (hereinafter the
"Current Projects"); and
WHEREAS, it is in the Parties' mutual interest that this Agreement
supercede the Original Agreement, except as provided for in Article 10, below;
and
WHEREAS, PRINTRAK has become familiar with the DMSC Object Code and the
aforementioned DMSC software products, and believes that the associated DMSC
Source Code will fulfill its needs in selling hardware/software solutions for
CAD systems;
NOW THEREFORE, in consideration of the above recitals and all of the
representations, promises, and conditions set forth in this Agreement, the
Parties, each intending to be legally bound hereby, do promise and agree as
follows:
1. DEFINITIONS
1.1 BASEINFO: A geographic display which can be integrated to a
Computer Aided Dispatch (CAD) system, a Customer Premises
Equipment (CPE) system, or an AVL (Automatic Vehicle Location)
system;
1.2 BASEINFO AVL SERVER: An AVL Server that can distribute location
update messages to BaseInfo Clients;
1.3 VEHICLEINFO: An in-vehicle map based geographic display;
1.4 CUSTOMER PREMISES EQUIPMENT (CPE): Telephone control equipment
that is located at the customer's site.
1.5 ADDRESS LOCATION INFORMATION (ALI): A database of structures and
their associated phone numbers and address information.
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1.6 MASTER STREET ADDRESS GUIDE: A database of street names and house
number ranges within their associated communities defining
Emergency Service Zones (ESZ) and their associated Emergency
Service Numbers (ESNs) to enable proper routing of 9-1-1 calls.
1.7 COMPUTER AIDED DISPATCH (CAD): A System for managing public safety
incidents and resources.
2. LICENSE
2.1 DMSC hereby grants, and PRINTRAK accepts, a non-exclusive, paid
up, unrestricted and irrevocable license to DMSC's proprietary
BI/VI/BI AVL Server source code, more fully identified in Exhibit
A (hereinafter the "DMSC Source Code"). Under said license
PRINTRAK shall have the right to develop derivative versions
thereof as defined herein (the "Derivative Works") and to grant
sublicenses for the Derivative Works in all areas and to all third
parties as set forth in this Agreement, subject to those
restrictions set forth in Section 2.2 below.
2.2 In acquiring said license, PRINTRAK will have access to DMSC's
valuable trade secret information concerning the operation of the
DMSC Products as embodied in the DMSC Source Code and related
documentation. PRINTRAK shall protect DMSC's trade secrets in
accordance with the provisions of Sections 2.2.1 - 2.2.5 and
Article 17, below. To protect DMSC's trade secrets and to
preclude unfair competition against DMSC, PRINTRAK's rights to
sell, sublicense and/or market capital Derivative Works and other
like mapping display and maintenance software products, whether
acquired or independently developed, are limited as follows:
2.2.1 For a period of five (5) years from the date of this
Agreement, PRINTRAK will not offer for sale or
license a map based display system that competes with
BaseInfo, that is integrated to the CPE or telephone
company equipment for purpose of displaying wireless
or wireline call location(s). This limitation does
not apply to any PRINTRAK sale and/or license to any
existing PRINTRAK CAD customer or to new PRINTRAK CAD
installations.
2.2.2 For a period of five (5) years from the date of this
Agreement, PRINTRAK will not offer for sale or
license a graphical Master Street Address Guide
(hereinafter "MSAG") product designed to maintain a
map based MSAG that competes with the Mapping
Operations Manager (hereinafter "MOM") product. This
limitation does not apply to any PRINTRAK sale and/or
license to any existing PRINTRAK CAD customer or to
new PRINTRAK CAD installations. Further, this
limitation will not preclude PRINTRAK from providing
ALI error correction requests to any telephone
company.
2.2.3 For a period of five (5) years from the date of this
Agreement, PRINTRAK will not offer for sale or
license an Automatic Vehicle Location (AVL) map
display solution designed to graphically
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display unit locations on a digital map. This
limitation does not apply to any PRINTRAK sale and/or
license to any existing PRINTRAK CAD customer or to
new PRINTRAK CAD installations.
2.2.4 For a period of two (2) years from the date of this
Agreement, PRINTRAK will not offer for sale or
license an in-vehicle map display solution designed
to display a unit and/or incident location. This
limitation does not apply to any PRINTRAK sale and/or
license to any existing PRINTRAK CAD customer or to
new PRINTRAK CAD installations.
2.2.4.1 In the event that DMSC creates any
additional VehicleInfo interface to any
mobile data system during this two (2) year
period, DMSC shall provide said interface to
PRINTRAK at no additional cost.
2.2.5 For a period of three (3) years from the date of this
Agreement, PRINTRAK will not offer for sale or
license BaseInfo, VehicleInfo, and/or BaseInfo AVL
Server or like mapping display and maintenance
software products, whether acquired or independently
developed, to other CAD vendors, including but not
limited to Tiburon, Intergraph, PRC, OSSI, Vision,
and Lucent.
2.3 Nothing in this Agreement shall prohibit DMSC from exploiting the
DMSC Source Code or object code in the ordinary course of DMSC's
business. DMSC reserves the right to license and sublicense its
products and the DMSC Source Code or object code to other
distributors, end users, or contractors, except as provided
herein.
2.4 For a period of five (5) years from the date of this Agreement,
DMSC will not enter into a similar or like non-exclusive DMSC
Source Code license with any CAD competitor of PRINTRAK.
3. EXTRALICENSE ROYALTIES
3.1 PRINTRAK shall have the right to request of DMSC written
permission to sell and/or license Derivative Works in apparent
violation of one or more of the limitations enumerated in Article
2.2, above. The Parties contemplate that, in consideration of
DMSC's grant of such written permission, PRINTRAK shall pay to
DMSC a royalty, the amount of which shall be agreed upon in the
future.
4. DMSC RESERVATION OF RIGHTS
4.1 All rights in DMSC Products not expressly granted are hereby
reserved by DMSC, including all patent rights to the DMSC Source
Code. The parties agree that the license granted herein does not
include a license to any patent and/or patent application that may
be directed to any other DMSC product or process.
5. TERM
5.1. This Agreement shall be effective upon execution by the Parties
and shall run in perpetuity unless otherwise terminated or by
operation of law.
Page 3 of 11
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6. CONSIDERATION
6.1. In consideration of the promises and obligations of DMSC set forth
herein, PRINTRAK hereby agrees to pay DMSC a non-refundable
license fee in the amount of ONE MILLION FIVE HUNDRED THOUSAND
DOLLARS (U.S. $1,500,000) (hereinafter the "License Fee"), due and
payable as follows:
6.1.1. ONE MILLION THREE HUNDRED THOUSAND DOLLARS (U.S.
$1,300,000) upon execution of this agreement by
PRINTRAK, to be paid via wire transfer within 48
(forty-eight) hours of execution; and
6.1.2. TWO HUNDRED THOUSAND DOLLARS (U.S. $200,000) within
TEN (10) days of Customer's notice of acceptance to
PRINTRAK of the DMSC components of the Lee County
project as outlined in paragraph 11.1 below and the
delivery to PRINTRAK by DMSC of all applicable
documentation related thereto.
7. RESTRICTIONS, DUTIES AND OBLIGATIONS OF PRINTRAK
7.1. PRINTRAK shall grant sublicenses for object code only and shall
maintain the DMSC Source Code in confidence pursuant to Article
17, below. This shall not preclude PRINTRAK and DMSC from
entering into joint Source Code Escrow Agreements for the benefit
of PRINTRAK's Customers. Consent to such agreements and the terms
thereof will not be unreasonably withheld by DMSC.
7.2. To protect DMSC trade secrets and to preclude unfair competition
against DMSC by PRINTRAK and PRINTRAK sublicensees, PRINTRAK will
refrain from selling, offering for sale and/or licensing
Derivative Works or other competing products as set forth in
paragraph 2.2, above.
7.3. If PRINTRAK breaches subparagraph 7.2, above, DMSC may pursue the
remedies specified in paragraph 14, below. Any such breach shall
not, however, affect the right of PRINTRAK to make, use, sell
and/or license Derivative Works in those markets not excluded by
paragraph 2.2, above.
7.4. In further consideration of PRINTRAK's duties and obligations
under this Agreement, PRINTRAK warrants to DMSC that PRINTRAK
shall:
7.4.1. Utilize its best efforts to fulfill the terms and
conditions of this Agreement;
7.4.2. Except as otherwise provided for herein, be solely
responsible for marketing activities, installation,
and training and application assistance required by
PRINTRAK's customers unless such activities have
been contractually agreed to in writing by DMSC on a
contract by contract basis; and
7.4.3. Comply with each provision of the standard
sublicense that accompanies a Derivative Work.
7.5. PRINTRAK and DMSC mutually agree not to solicit each other's
employees for the purpose of employment or as independent
contractors for a period of three (3) years from the execution of
this Agreement. Violation of this subparagraph
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<PAGE>
7.5 shall be considered a breach of this Agreement, but shall not
form the basis for repudiation of the license grant set forth in
paragraph 2, above.
7.6. PRINTRAK shall have the right to promote this agreement. PRINTRAK
agrees that it will offer the Derivative Works as an OEM product
under a name to be chosen by PRINTRAK, which shall be solely
responsible for said name.
8. DMSC OBLIGATIONS
8.1 DMSC shall deliver to PRINTRAK the DMSC Source Code on a CD-ROM
together with the latest version of all of DMSC's applicable and
relevant documentation, "as is", within TEN (10) days of DMSC's
receipt of PRINTRAK's payment of the first installment of the
License Fee. DMSC Source Code shall include the following
components:
8.1.1 BaseInfo
8.1.2 Vehicle Info
8.1.3 BaseInfo AVL Server
8.1.4 BaseInfo to Printrak CAD Interface
8.1.5 BaseInfo AVL Server to Trimble Inverse Differential
8.1.6 BaseInfo AVL Server to BaseInfo AVL Client
8.1.7 BaseInfo AVL Server to Tiburon Message Switch
8.1.8 VehicleInfo to Wavesoft 300 Interface
8.2 PRINTRAK accepts DMSC's Source Code and documentation in an "as
is" condition. DMSC shall have no obligation to correct, change,
modify, enhance or "debug" same except as provided for in
subparagraphs 8.3 and 8.4.
8.3 DMSC Source Code may need to be modified, enhanced and/or
corrected as a prerequisite to the creation of object code
required by PRINTRAK for development and sublicensing of
Derivative Works. Alternatively, certain code errors may need to
be "debugged." Other than as specified in subparagraph 8.4, such
modifications, enhancements, or bug fixes shall be performed by
PRINTRAK unless DMSC agrees to perform same by mutual agreement.
8.4 Should PRINTRAK request services of DMSC pursuant to paragraph
8.3, above, DMSC's no-cost obligation to provide same shall,
unless otherwise agreed in writing, be limited to a maximum of two
hundred (200) hours of effort. PRINTRAK shall be obliged to
reimburse DMSC personnel for reasonable travel expenses incurred
with respect to same. If PRINTRAK desires any additional
modification or support services beyond that specified above in
this paragraph, DMSC shall, subject to mutual agreement in advance
by both Parties, provide up to one hundred sixty (160) hours per
month at a cost to PRINTRAK of two hundred dollars (U.S. $200.00)
per hour plus reasonable expenses, including but not limited to
travel time and expenses for twelve months from the effective date
of this Agreement. Such charges shall be invoiced by DMSC on a
monthly basis, and shall be due and payable within thirty (30)
days following PRINTRAK's receipt of such invoices. DMSC cannot
guarantee its availability beyond said twelve-month period. If
the Parties agree that DMSC's support services are to be provided
beyond said twelve-month period, the cost to PRINTRAK shall be
renegotiated.
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9. REPRESENTATIONS AND WARRANTIES
9.1 DMSC represents that it has no actual knowledge that the DMSC
Products infringe the valid intellectual property rights of any
third party. DMSC shall have no obligation to indemnify,
contribute or to defend on any claims of infringement, unfair
competition or other claims arising from PRINTRAK's use of the
Source Code.
9.2 DMSC Products' titles are working titles only. DMSC makes no
express or implied representations and/or warranties with respect
to same.
9.3 The Parties represent and warrant that they have the right to
enter into this agreement and that there are no agreements with
any third parties which shall prohibit their ability to perform
their respective rights and obligations under this Agreement.
10. THE ORIGINAL AGREEMENT
10.1 The Original Agreement between DMSC and PRINTRAK is hereby
superceded and is no longer in force and effect, with the
exception of any existing obligations of PRINTRAK to compensate
DMSC for services rendered and the mutual obligations of the
parties to keep certain matters confidential.
10.2 In the case of any conflict between the language of the surviving
obligations of the Parties pursuant to the Original Agreement and
the subject Agreement, the terms and conditions of this Agreement
shall prevail
11. CURRENT PROJECTS
11.1. As specified in Paragraph 6.1.2, above, the Parties agree that
DMSC shall provide products, services and technical support for
completing the installation of DMSC's BI, VI, and BI AVL Server
products at Lee County, Florida, according to the terms of
PRINTRAK purchase order number 400916, dated 9/29/98, including
full payment due thereupon. Upon completion of the Lee County
project, DMSC shall provide PRINTRAK with an updated version of
the BI and BI AVL Server Source Code with all applicable upgrades
and deliverables that DMSC has developed for Lee County in
accordance with said purchase order, including an "as is" update
of the Source Code. Said Source Code shall be the exact same
Source Code used for the final deliverable item in the Lee County
project.
11.2 DMSC reaffirms that it is responsible for fulfilling its
obligations and under the aforesaid purchase order, and PRINTRAK
reaffirms that it is responsible for payment to DMSC subject to
the terms and conditions of said purchase order.
11.3 With the exception of the Lee County project of Paragraph 11.1,
above, any and all open contracts upon which PRINTRAK has either
executed or bid and which contain the DMSC Products by name, by
reference or in any other manner, shall be fulfilled solely by
PRINTRAK. DMSC is hereby released from any and all responsibility
for providing any services, unless otherwise agreed upon in
writing by DMSC, including but not limited to the Colorado State
Patrol (CSP) project. DMSC is entitled to retain any and all
compensation previously paid to DMSC as full consideration for
DMSC's services previously rendered in connection with other
projects, including but not limited to the CSP project.
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12. TAXES
12.1 Any sales, use, personal property, or other taxes (other than
Federal and State taxes on DMSC income), which are assessed by any
taxing authority in connection with this Agreement, shall be the
responsibility of PRINTRAK.
13. INDEPENDENT CONTRACTOR
13.1 DMSC shall exercise no control over the activities and operations
of PRINTRAK other than as specifically provided herein to protect
DMSC's own rights and reputation. PRINTRAK's performance of its
duties and obligations under this Agreement is in its capacity as
an independent contractor. Accordingly, nothing contained in this
Agreement shall be construed as establishing an employer/employee,
a partnership, distributor, agency, franchise, brokerage, or joint
venture relationship between DMSC and PRINTRAK.
14. SPECIFIC PERFORMANCE
14.1. The Parties agree that in the event of a breach of this Agreement,
the non-breaching party shall suffer irreparable injury not easily
compensable by money damages, and that specific performance and
injunctive relief shall be an appropriate partial remedy, in
addition to such money damages.
15. SUPPORT, MAINTENANCE AND UPDATES
15.1. Unless otherwise provided herein, or agreed to in writing by DMSC,
DMSC shall be under no obligation to provide support, maintenance,
and/or updates of the DMSC Products, the DMSC Source Code or the
Derivative Works.
16. WARRANTY
16.1. DMSC makes no warranty whatsoever, express or implied, to PRINTRAK
or to any PRINTRAK sublicensee with respect to the subject matter
of this Agreement, including but not limited to an implied
warranty of merchantability or fitness for a particular purpose.
16.2 DMSC represents and warrants that all date fields within the
Products utilize a four-digit year field. The century in any date
field must be specified explicitly in any interface to the
Products. The Products will not perform an implicit date
conversion for two-digit date fields.
17. CONFIDENTIALITY
17.1. PRINTRAK recognizes that the DMSC Source Code is the confidential
trade secret of DMSC and that its unauthorized disclosure would
have a detrimental effect upon the efforts of the Parties to
commercially exploit the DMSC Source Code and Derivative Works.
Therefore, PRINTRAK shall retain the DMSC Source Code in strict
confidence and shall grant all sublicensees access to only the
object code of Derivative Works.
17.2 In performance of this Agreement, both Parties acknowledge that
each will have access to valuable trade secret information of the
other relating to the DMSC
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Products, the DMSC Source Code and the Derivative Works, and to
certain details concerning the business activities of each party.
Both Parties acknowledge that such trade secret and business
activity information is the property of its owner and is
considered to be confidential, and the publication and/or
disclosure to third parties of such information will cause
immediate and irreparable harm to the owner.
17.3. Both parties agree to take any and all steps reasonably necessary
to maintain confidentiality and the trade secret status of the
confidential information obtained from, or as a result of, their
relationship with one another.
17.4. Both parties shall require any employee, independent contractor,
joint venturer, agent, representative or any other party having
access to the confidential information of the other party on a
need to know basis, to agree to maintain the confidentiality and
trade secret status of same.
17.5. Either during the term or thereafter, neither party shall use, or
disclose to any other party without such a need to know, any
information concerning the contents of this Agreement, except for
purposes consistent with the administration and performance of
obligations hereunder, as required by law.
17.6. The obligation not to disclose information shall not apply to
information which was already in the public domain, or in the
rightful possession of the other party at the time of its
disclosure; or which is disclosed as a matter of right by a third
party after the execution of this Agreement.
17.7. Any breach of any obligation contained in this Article 17 will
cause immediate and irreparable harm to the owner of said
confidential information and accordingly, the owner shall be
entitled, without limitation, to immediate injunctive relief
against any actual or threatened violation. The obligations of
confidentiality contained in this paragraph, or otherwise in this
Agreement, shall survive expiration or termination of this
Agreement for whatever reason.
18. NOTICES
18.1. All notices to either party required or permitted under this
Agreement shall be in writing and shall be personally delivered or
sent by certified mail, postage prepaid, return receipt requested
or by facsimile transmission with confirmation, to the parties at
their respective addresses AS set forth below, OR as either party
may from time to time change by written notice to the other.
18.2. Notice shall be deemed effective when received, or, if sent by
prepaid certified mail with return receipt requested, then forty
eight (48) hours following the date of postmark.
IF TO PRINTRAK: WITH A COPY TO
Printrak International Inc. Printrak International Inc.
1250 North Tustin Avenue 6165 Lookout Road
Anaheim, CA 92807 Boulder, CO 80301
Attn: Contracts Department Attn: Contracts Department
Fax: (714) 238-2049 Fax: (303) 527-4001
Page 8 of 11
<PAGE>
IF TO DMSC:
DMSC Inc.
815 Eyrie Drive, Suite 1C
Oviedo, FL 32765
Attn: Contracts Department
Fax: 407-365-1145
19. NON-WAIVER
19.1. The failure of either party at any time to enforce a provision of
this Agreement shall in no way constitute a waiver of the
provision, nor in any way effect the validity of this Agreement or
any part hereof, or the right of such party thereafter to enforce
each and every provision of this Agreement.
20. APPLICABLE LAW AND RESOLUTION OF DISPUTES
20.1. This Agreement shall be interpreted and governed in accordance
with the laws of the State of Florida. All disputes hereunder
shall be resolved in the applicable state or federal courts of
Florida. The Parties consent to the jurisdiction of such courts,
agree to accept service of process by mail, and waive any
jurisdictional or venue defenses otherwise available. In the
event of litigation between the Parties, the prevailing party
shall be entitled to receive reimbursement of its costs and
attorney's fees from the non-prevailing party.
21. INFRINGEMENTS
21.1. DMSC shall have the right, in its sole discretion, to prosecute
lawsuits against third persons for infringement of its rights in
the DMSC Products or the DMSC Source Code, or any Derivative Work
created therefrom.
21.2. Should DMSC not file such suit within sixty (60) days of a request
by PRINTRAK that it do so, PRINTRAK shall be entitled to pursue
such suit.
21.3. Any lawsuit shall be prosecuted solely at the expense of the party
bringing suit and all sums recovered shall be retained by the
party bringing suit, unless otherwise agreed in writing. However,
in the event that any such dispute results in a settlement wherein
a sublicense is to be granted to any other party, any proposed
settlement agreement must be approved in writing in advance by
both PRINTRAK and DMSC.
21.4 The Parties agree to cooperate fully with the one another in the
prosecution of any such suit. The party bringing suit shall
reimburse the other for any expenses previously approved in
writing that it might incur as a result of such cooperation.
22. SEVERABILITY
22.1. If any provision hereof is held invalid or unenforceable by a
court of competent jurisdiction, such invalidity shall not affect
the validity or operation of any other provision and such invalid
provision shall be deemed to be severed from the Agreement.
23. TRANSFER/ASSIGNMENT
Page 9 of 11
<PAGE>
23.1. DMSC may assign, transfer or sell its rights and obligations under
this Agreement to any third party to further a transfer, sale or
assignment of a majority interest in or assets of DMSC.
23.2. Except as otherwise provided for, this Agreement shall be binding
on and shall inure to the benefit of the Parties hereto, and their
heirs, administrators, successors, and assigns.
24. COMPLETE AGREEMENT AND AMENDMENTS
24.1 This Agreement constitutes the entire understanding of the
Parties, and revokes and supersedes all prior agreements, oral or
written, between the Parties (including the Original Agreement),
and is intended as a final expression of their Agreement. It
shall not be modified or amended except in writing signed by the
Parties hereto and specifically referring to this Agreement. This
Agreement shall take precedence over any other documents that may
be in conflict therewith. Any provision of this Agreement decreed
invalid by a court of competent jurisdiction shall not invalidate
the remaining provisions of this Agreement.
25. EXHIBITS
25.1 The following Exhibits are attached hereto and are incorporated
into this Agreement:
Exhibit A: DMSC Source Code
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
on the date set forth below, effective on the date first set forth above, and
the persons signing represent and warrant that they are duly authorized to sign
on behalf of their respective Party. This Agreement shall be deemed to be
accepted by DMSC only upon execution by a duly authorized representative of
DMSC.
DMSC Inc. Printrak International Inc.
"DMSC" "PRINTRAK"
By: /s/ Todd Radulski By: /s/ Richard Giles
---------------------------- ----------------------------
Printed: Todd Radulski Printed: Richard Giles
Title: President Title: CEO
Date: June 30, 1999 Date: July 1, 1999
-------------------------- --------------------------
Page 10 of 11
<PAGE>
EXHIBIT A
DMSC SOURCE CODE
All software components are provided "as is." The following description
of component parts of the DMSC Source Code are provided for informational
purposes and do not provide any warranties, covenants, obligations or
representations on the part of DMSC:
1. The development of BI requires software licenses for various third
party development tool libraries. PRINTRAK will be solely responsible for
purchasing all necessary development tools, as well as any runtime licenses for
deliverable products.
2. BI uses two proprietary routing engine libraries (one for
MapObjects and the other for MapInfo MapX) to generate shortest path
calculations. The MapObjects routing engine is no longer a supported product and
thus neither the library nor the development license is available for purchase
by PRINTRAK. If DMSC chooses to replace either or both of these routing engines
with another third party routing library, and if such replacement occurs before
the Lee County final deliverable, DMSC shall identify the new library interface
to PRINTRAK. PRINTRAK shall be responsible for procuring both the development
licenses and the runtime licenses for the routing engines.
3. The development of VI requires software licenses for various third
party development tool libraries. PRINTRAK will be solely responsible for
purchasing all necessary development tools, as well as any runtime licenses for
deliverable products.
4. VI uses two proprietary routing engine libraries (one for
MapObjects and the other for MapInfo MapX) to generate shortest path
calculations. The MapObjects routing engine is no longer a supported product
and thus neither the library nor the development license is available for
purchase by PRINTRAK. If DMSC decides to replace each of these routing engines
with another third party routing library, and if this occurs before the Lee
County final deliverable, DMSC will identify the new library interface to
PRINTRAK. PRINTRAK will still be responsible for procuring the development
licenses for this engine and the runtime licenses.
5. BaseInfo AVL Server is currently under development. DMSC expects
BaseInfo AVL Server to interface with either Microsoft Access or Microsoft SQL
Server 7.0. DMSC plans to develop this interface via tools available within
Microsoft Visual C++ Professional. Licenses for one of these products will be
required for the AVL Server. PRINTRAK will have sole responsibility for the cost
of procuring the development and runtime licenses required.
6. The development of BaseInfo AVL Server may require software
licenses for various third party development tools libraries. PRINTRAK will be
solely responsible for purchasing all necessary development tools, as well as
any runtime licenses for deliverable products. Although BaseInfo AVL Server
does not presently require any runtime licenses other than certain database
licenses from third parties, there may be additional runtime licenses required
by the time AVL Server development is complete. PRINTRAK will have sole
responsibility for the cost of procuring the development and runtime licenses
required.
Page 11 of 11
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