<PAGE>
- --------------------------------------------------------------------------------
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 DECEMBER 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
---------
PRINTRAK INTERNATIONAL INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0070547
- -------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 North Tustin Avenue Anaheim, California 92807
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(714) 238-2000
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
--- ---
11,780,202 shares of the issuer's common stock, par value $0.0001 per
share, were outstanding as of January 31, 2000.
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-Q
CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1999 (unaudited)
and March 31, 1999...................................................................... 1
Unaudited Consolidated Statements of Operations for the three-month
period ended December 31, 1999 and December 31, 1998.................................... 2
Unaudited Consolidated Statements of Operations for the nine-month
period ended December 31, 1999 and December 31, 1998.................................... 3
Unaudited Consolidated Statements of Cash Flows for the nine-month
period ended December 31, 1999 and December 31, 1998.................................... 4
Notes to the Unaudited Consolidated Financial Statements................................ 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risks.................... 15
PART II - OTHER INFORMATION
Item 1: Legal Proceedings............................................................... 16
Item 2: Changes in Securities and Use of Proceeds....................................... 16
Item 3: Defaults upon Senior Securities................................................. 16
Item 4: Submission of Matters to a Vote of Security Holders............................. 16
Item 5: Other Information............................................................... 16
Item 6: Exhibits and Reports on Form 8-K................................................ 17
Signature ............................................................................. 18
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1999 AND MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
(unaudited) (audited)
---------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................... $11,288 $ 8,557
Accounts receivable, net (Note 2)................................................. 28,575 29,995
Inventories, net (Note 3)......................................................... 12,573 8,245
Prepaid expenses and other current assets......................................... 3,649 1,333
Deferred income taxes............................................................. 5,207 5,207
---------------- ----------------
Total current assets.......................................................... 61,292 53,337
Notes receivable from related parties................................................. 750 74
Property, plant and equipment, net ................................................... 3,271 4,103
Deferred income taxes................................................................. 3,913 3,820
Other long-term assets................................................................ 1,142 1,638
Goodwill and other intangible assets, net............................................. 3,251 2,330
---------------- ----------------
TOTAL ASSETS $73,619 $65,302
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $3,142 $ 8,879
Accrued wages and employee benefits.............................................. 3,741 1,990
Other accrued liabilities........................................................ 8,698 7,508
Current portion of long-term debt ............................................... 109 122
Deferred revenue................................................................. 13,568 12,704
Income taxes payable............................................................. 4,115 918
---------------- ----------------
Total current liabilities..................................................... 33,373 32,121
Long-term debt, less current portion................................................. 473 180
---------------- ----------------
Total liabilities......................................................... 33,846 32,301
STOCKHOLDERS' EQUITY:
Common stock ($.0001 par value; 20,000,000 shares authorized;
11,733,761 and 11,361,382 shares issued and outstanding) ........................ 1 1
Additional paid-in capital....................................................... 20,152 18,886
Retained earnings................................................................ 19,957 14,360
Note receivable from stockholder................................................. (134) (300)
Accumulated other comprehensive income (loss).................................... (203) 54
---------------- ----------------
Total stockholders' equity.................................................... 39,773 33,001
---------------- ----------------
---------------- ----------------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $73,619 $65,302
---------------- ----------------
---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three-month Three-month
period ended period ended
December 31, December 31,
1999 1998
-------------- ---------------
<S> <C> <C>
REVENUES:
System........................................................................ $21,896 $19,280
Maintenance................................................................... 5,983 4,439
-------------- ---------------
Total revenues ........................................................... 27,879 23,719
COST OF REVENUES:
System........................................................................ 12,371 11,979
Maintenance................................................................... 3,497 2,691
-------------- ---------------
Total cost of revenues ................................................... 15,868 14,670
Gross profit............................................................. 12,011 9,049
OPERATING EXPENSES:
Research, development and engineering......................................... 2,048 642
Selling, general and administrative .......................................... 6,629 5,788
-------------- ---------------
Total operating expenses
8,677 6,430
Operating income ........................................................ 3,334 2,619
Other (income) expense........................................................ (13) 209
-------------- ---------------
Income before provision (benefit) for income taxes........................ 3,347 2,410
Provision (benefit) for income taxes.......................................... 1,339 (5,930)
-------------- ---------------
Net income ............................................................... $2,008 $8,340
-------------- ---------------
-------------- ---------------
Net income per common share:
Basic..................................................................... $ .17 $ .73
-------------- ---------------
-------------- ---------------
Diluted................................................................... $ .17 $ .70
-------------- ---------------
-------------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine-month Nine-month
period ended period ended
December 31, December 31,
1999 1998
------------- --------------
<S> <C> <C>
REVENUES:
System........................................................................ $65,928 $48,496
Maintenance................................................................... 15,806 11,861
------------- --------------
Total revenues ........................................................... 81,734 60,357
COST OF REVENUES:
System........................................................................ 40,459 27,214
Maintenance................................................................... 10,127 8,301
------------- --------------
Total cost of revenues ................................................... 50,586 35,515
Gross profit............................................................. 31,148 24,842
OPERATING EXPENSES:
Research, development and engineering......................................... 4,908 4,495
Selling, general and administrative .......................................... 17,197 15,726
------------- --------------
Total operating expenses.................................................. 22,105 20,221
Operating income......................................................... 9,043 4,621
Other (income) expense........................................................ (293) 370
------------- --------------
Income before provision for income taxes.................................. 9,336 4,251
Provision (benefit) for income taxes.......................................... 3,746 (5,286)
------------- --------------
Net income ............................................................... $ 5,590 $ 9,537
------------- --------------
Net income per common share:
Basic..................................................................... $ .48 $ .84
------------- --------------
------------- --------------
Diluted................................................................... $ .47 $ .82
------------- --------------
------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine-month Nine-month
period ended period ended
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................ $ 5,590 $ 9,537
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 2,319 2,477
Loss on sale or disposition of fixed assets............................... 182 179
Deferred taxes............................................................ - (4,729)
Changes in operating assets and liabilities:
Accounts receivable, net............................................... 432 976
Inventories, net....................................................... (4,330) 1,173
Prepaid expenses and other current assets.............................. (1,237) 807
Accounts payable....................................................... (5,738) (1,841)
Accrued liabilities.................................................... 1,702 (896)
Deferred revenue....................................................... 856 881
Income taxes payable................................................... 3,193 -
Other.................................................................. 1,969 (721)
-------------- --------------
Net cash provided by operating activities................................. 4,938 7,843
Cash flows from investing activiti1es:
Capital expenditures...................................................... (1,102) (1,070)
Increase in other long-term and intangible assets......................... (1,500) -
Proceeds from the sale of PPE............................................. 2 5
Net proceeds from notes receivable........................................ 166 488
Notes receivable from related parties..................................... (676) -
Sale and maturities of short-term investments ............................ (3) 1,110
-------------- --------------
Net cash (used in) provided by investing activities....................... (3,113) 533
Cash flows from financing activities:
Principal repayments on long-term debt.................................... (157) (10,851)
Repurchase of common stock................................................ (295) -
Proceeds from exercise of stock options................................... 1,561 301
-------------- --------------
Net cash provided by(used in) financing activities...................... 1,109 (10,550)
Effect of exchange rate changes on cash balances.............................. (203) 48
-------------- --------------
Net change in cash and cash equivalents....................................... 2,731 (2,126)
Cash and cash equivalents, beginning of year.................................. 8,557 3,763
-------------- --------------
Cash and cash equivalents, end of period...................................... $ 11,288 $ 1,637
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<S> <C> <C>
Non-cash transaction-transfer of inventory to (from) fixed assets - (100)
Supplemental disclosure of cash flow information:
Interest paid ........................................................... $ 8 $ 88
-------------- --------------
-------------- --------------
Income taxes paid........................................................ $ 33 $ 97
-------------- --------------
-------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
GENERAL BUSINESS
Printrak International Inc. ("the Company") is a global supplier of
enterprise software and related services for information management and
decision support that ensures community safety and security. The Company's
suite of networked applications provides comprehensive management of
government records for rapid access and analysis of critical and
time-sensitive public information. The systems operate by gathering,
validating, warehousing, mining and distributing mission critical data to
government agencies and businesses using private networks, the Internet or
wireless services. Printrak technology also provides the positive
identification infrastructure necessary to reduce fraud and enhance data
exchange. 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 for a fair statement of the financial
position and results of operations as of December 31, 1999 and for the three
month and nine month periods ended December 31, 1999 and 1998. The results of
operations for the three month and nine month periods ended December 31, 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-
6
<PAGE>
term contracts due to a significant amount of customization, the Company
recognizes revenue on a percentage of completion basis.
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 nine-month periods
ended December 31, 1999, the difference between net income, as reported, and
comprehensive income was not significant.
2. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
December 31, March 31, 1999
1999 1999
(unaudited) (audited)
-------------- ----------------
<S> <C> <C>
Billed receivables.................................................. $ 20,254 $ 22,626
Unbilled receivables................................................ 8,765 7,996
-------------- ----------------
29,019 30,622
Less allowance for doubtful accounts................................ (444) (627)
-------------- ----------------
$ 28,575 $ 29,995
-------------- ----------------
-------------- ----------------
</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>
December 31, March 31, 1999
1999 1999
(unaudited) (audited)
-------------- ----------------
<S> <C> <C>
Raw materials....................................................... $ 4,473 $ 4,678
Work in progress.................................................... 8,949 4,114
-------------- ----------------
13,422 8,792
Less allowance for inventory obsolescence and revaluation........... (849) (547)
-------------- ----------------
$ 12,573 $ 8,245
-------------- ----------------
-------------- ----------------
</TABLE>
4. NET INCOME AND NET INCOME PER COMMON SHARE
SFAS No. 128 requires dual presentation of "basic" and "diluted" earnings per
share, thus replacing "primary" and "fully diluted" earnings per share required
under APB No. 15. Basic EPS excludes common stock equivalents and is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the inclusion of common stock equivalents
and their potential dilution. Diluted EPS is similar to fully diluted EPS;
however, it uses the average stock price during the period as part of the
computation.
7
<PAGE>
The number of shares used in computing EPS is as follows for the three-month
period ended December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Weighted average shares outstanding-basic........................... 11,567,000 11,357,000
Common Stock equivalents............................................ 310,000 508,000
----------- -----------
Weighted average shares outstanding - diluted....................... 11,877,000 11,865,000
----------- -----------
----------- -----------
</TABLE>
The number of shares used in computing EPS is as follows for the nine-month
period ended December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Weighted average shares outstanding-basic........................... 11,598,000 11,315,000
Common Stock equivalents............................................ 301,000 374,000
----------- -----------
Weighted average shares outstanding - diluted....................... 11,899,000 11,689,000
----------- -----------
----------- -----------
</TABLE>
8
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTORY NOTE
This Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934 and the Company
intends that such forward-looking statements be subject to the safe harbors
created thereby. 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 December 31, 1999 with
the three-month period ended December 31, 1998, as well as the nine-month
period ended December 31, 1999 with the nine-month period ended December 31,
1998. This discussion should be read in conjunction with the financial
statements and associated notes.
9
<PAGE>
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED DECEMBER 31, 1999 COMPARED TO THE THREE-MONTH PERIOD
ENDED DECEMBER 31, 1998
TOTAL REVENUES
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.
Total revenues increased 17.5% to $27.9 million for the three-month period
ended December 31, 1999 compared to $23.7 million for the quarter ended
December 31, 1998.
System revenues increased $2.6 million or 13.6% to $21.9 million for the
third quarter ended December 31, 1999 from $19.3 million for the third
quarter ended December 31, 1998. Systems revenues related to the Argentina
civil identification contract totaled $3.0 million for the quarter.
Maintenance revenues increased to $6.0 million or 34.8% for the quarter ended
December 31, 1999, compared to revenues of $4.4 million for the quarter ended
December 31, 1998. The increase in maintenance reflects an overall expansion
of our customer base over the prior year as well as $764,000 in maintenance
revenues attributable to the Argentina contract.
Quarterly revenues have in the past, fluctuated significantly. Similar
fluctuations may occur in the future. 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 consists of purchased materials procured for use
in the assembly of the Company's products, manufacturing or assembly labor
and overhead, engineering and development labor, file conversion costs and
data mapping costs, as well as maintenance expenses and estimated costs to
complete system installations.
Overall gross profit increased 32.7% to $12.0 million for the quarter ending
December 31, 1999, versus $9.0 million for the quarter ended December 31,
1998. Gross margin was 43.1% for the three months ended December 31, 1999, up
38.2% for the three months ended December 31, 1998. The gross profit for
system revenues increased to $9.5 million for the quarter ended December 31,
1999 from $7.3 million for the same quarter from the previous fiscal year.
The system gross margin increased to 43.5% for the current quarter from 37.9%
for the third quarter of the previous fiscal year. Maintenance gross profit
increased to $2.5 million for the quarter ended September 30, 1999 from $1.7
million during the same period of the prior year. Gross margin related to
maintenance revenue increased to 41.6% for the three months ended December
31, 1999 in comparison to 39.4% for the third quarter of the previous year.
The increase in system gross margin reflects the decrease in the allocation
of R&D resources to contract specific tasks, which had reduced R&D
expenditures in the past, and increased profit margins realized due to the
product mix. These resources have now been applied to R&D expenses, which
have increased.
10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses consist primarily 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 December 31, 1999, SG&A expenses increased
to $6.6 million from $5.8 million for the three-month period ended December
31, 1998. This $800,000 increase primarily reflects additional headcounts and
the costs related to the recruitment of key employees as part of building our
infrastructure along with 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 23.8% for the three-month period ended December 31, 1999 from
24.4% for the three-month period ended December 31, 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 of $2.0 million for the three-month period ended December 31,
1999, increased 219.0% from $600,000 for the three-month period ended
December 31, 1998. The increase in RD&E expenses is primarily attributable to
the shift of our research and development effort from the performance of new
contracts to research activities. This shift is primarily due to the
completion of the first phase of the Argentina contract during the early part
of the quarter ended December 31, 1999. Costs of materials and labor
associated with projects along with the transfer of personnel from system
integration to R&D were the main contributors to the increase. RD&E expenses,
as a percentage of revenues, increased to 7.3% for the three-month period
ended December 31, 1999 from 2.7% for the three-month period ended December
31, 1998.
PROVISION FOR INCOME TAXES
Income tax expense for the three-month period ended December 31, 1999 equaled
$1.3 million compared to an income tax benefit of $5.9 million for the
three-month period ended December 31, 1998. Our tax provision for fiscal 2000
is based on the federal statutory rate of 40% and reflects the impact of
state and foreign taxes. For the third quarter ending December 31, 1998 we
reversed the valuation allowance on the net deferred tax asset of $6.2
million which resulted in a tax benefit being recorded for the period.
NINE-MONTH PERIOD ENDED DECEMBER 31, 1999 COMPARED TO THE NINE-MONTH PERIOD
ENDED DECEMBER 31, 1998
TOTAL REVENUES
Total revenues of $81.7 million for the nine-month period ended December 31,
1999, increased $21.4 million, or 35.4%, from $60.4 million for the
nine-month period ended December 31, 1998. This increase in revenue is
primarily attributable to approximately $11.0 million in systems revenues
recorded during the nine-month period ending December 31, 1999 relating to
the Argentina Civil ID contract compared to $1.4 million in revenue for the
nine-month period ending December 31, 1998 and $13.3
11
<PAGE>
million in revenues for CAD systems recorded during the nine-month period
ending December 31, 1999 compared to $8.8 million for the nine-month period
ending December 31, 1998.
Maintenance revenue of $15.8 million for the nine-month period ended December
31, 1999, increased $3.9 million, or 33.3%, from $11.9 million for the
nine-month period ended December 31, 1998. The increase is primarily
attributable to an overall expansion of the customer base over the prior year.
GROSS PROFIT
Overall gross profit of $31.2 million for the nine-month period ended
December 31, 1999 increased 25.4% from $24.8 million for nine-month period
ended December 31, 1998. Gross margin was 38.1% for the nine-month period
ended December 31, 1999, down from 41.2% for the nine-month period ended
December 31, 1998. Gross profit for system revenues increased to $25.5
million for the nine-month period ended December 31, 1999 from $21.3 million
for the nine-month period ended December 31, 1998. System gross margin
decreased to 38.6% for the nine-month period ended December 31, 1999 from
43.9% from the nine-month period ended December 31, 1998. 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
nine-month period, as well as lower profit margins realized due to the
product mix.
Overall maintenance gross profit of $5.7 million for the nine-month period
ended December 31, 1999 increased $2.1 million from $3.6 million for the
nine-month period ended December 31, 1998. Gross margin related to
maintenance revenues increased to 35.9% for the nine-month period ended
December 31, 1999 compared to 30.0% for the nine-month period ended December
31, 1998. The increase is reflective of an overall expansion of the customer
base over the prior year and $764,000 maintenance revenue attributable to the
Argentina contract.
SELLING, GENERAL AND ADMINISTRATIVE
SG&A expenses of $17.2 million for the nine-month period ended December 31,
1999, increased 9.4% from $15.7 million for the nine-month period ended
December 31, 1998. SG&A expenses, as a percentage of revenues, decreased to
21.0% for the nine-month period ended December 31, 1999 from 26.1% for the
nine-month period ended December 31, 1998. The $1.5 million increase
primarily reflects additional headcount and the costs related to the
recruitment of key employees as part of building our infrastructure along
with costs associated with the opening of the Irvine office at the end of
April 1999.
RESEARCH, DEVELOPMENT AND ENGINEERING
RD&E expenses of $4.9 million for the nine-month period ended December 31,
1999 increased 9.2% from expenses of $4.5 million for the nine-month period
ended December 31, 1998. RD&E expenses, as a percentage of revenues,
decreased to 6.0% for the nine-month period ended December 31, 1999, down
from 7.4% for the nine-month period ended December 31, 1998. This $413,000
increase is primarily the result of increased allocation of resources to R&D
as opposed to contract specific tasks which were classified as cost of
revenues.
12
<PAGE>
OTHER (EXPENSE) INCOME
Other income for the nine-month period ended December 31, 1999 equaled
$293,000 in comparison to other expense of $370,000 for the nine-month period
ended December 31, 1998. Other income for the nine-month period ended
December 31, 1999 is primarily composed of interest income of $516,000 which
is offset by exchange losses of $139,000, interest expense of $28,000 and
other expense of $56,000.
PROVISION FOR INCOME TAXES
Income tax for the nine-month period ended December 31, 1999 equaled $3.7
million compared to a tax benefit of $5.3 million for the nine-month period
ended December 31, 1998. Our prior year tax benefit reflects the reversal of
the $6.2 million valuation allowance against our net deferred tax asset.
We evaluate a variety of factors in determining the amount of deferred income
tax assets to be recognized pursuant to SFAS 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
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, we released our deferred tax valuation allowance
totaling $6.2 million. Although realization of the deferred tax asset is not
assured, we believe that it is more likely than not that all of the deferred
tax asset will be realized.
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 December 31, 1999, our system revenue backlog
approximated $66.2 million, compared to $71.7 million as of September 30,
1999 and $95.0 million as of December 31, 1998. In addition, our maintenance
revenue backlog approximated $32.8 million as of December 31, 1999. The
system and maintenance revenue backlog includes what remains to be delivered
on our $46.0 million contract with Siemens Argentina entered into in October
1998. The six year contract is to provide automated fingerprint technology to
the Argentina government as part of their national ID program.
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.
13
<PAGE>
FINANCIAL CONDITION
Cash and cash equivalents increased from $8.6 million at March 31, 1999 to
$11.3 million at December 31, 1999 as a result of stronger collections and
increased emphasis on customer deposits on new contracts.
Inventories increased from $8.2 million at March 31, 1999 to $12.6 million at
December 31, 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 third quarter, our Chief Executive Officer and President, Richard
M. Giles, was extended a loan of $100,000 which was in addition to the
$600,000 borrowed from the Company in the first quarter. An unsecured
promissory note accompanied the $100,000 loan which bears interest at 5.5%
per annum and matures at April 15, 2001. The promissory note for the first
loan 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 at March 31, 1999 to $750,000 at December 31, 1999.
The decrease in the net balance of property, plant and equipment of $800,000
from $4.1 million at March 31, 1999 to $3.3 million at December 31, 1999
reflects capital expenditures of approximately $1.1 million and depreciation
expense of $1.9 million.
The increase in goodwill and other intangible assets was attributable to the
purchase of the DMSC mapping software license for $1.5 million that is being
amortized over thirty-six months beginning July 1999.
The decrease in accounts payable during the nine-month period ended December
31, 1999 of $5.7 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 of $1.8 million is
primarily the result of three days of accrued payroll at March 31, 1999
versus ten days of accrued payroll at December 31, 1999 as well as increases
in headcount during the nine-month period. The increase in other accrued
liabilities is primarily the result of increases in management bonus
provisions.
The increase in income taxes payable from $0.9 million at March 31, 1999, to
$4.1 million at December 31, 1999, reflects additional provisions for income
taxes as a result of increased earnings during the nine-month period ended
December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We finance our operations through the cash provided by our operations and the
use of our revolving credit line. Our operating activities provided cash of
approximately $4.9 million for the nine months ended December 31, 1999
primarily through net earnings before non-cash depreciation and amortization.
14
<PAGE>
Our investing activities used net cash of $3.1 million for the nine-month
period ended December 31, 1999 due primarily to the extension of the $700,000
in notes receivable to Richard Giles, capital expenditures of $1.1 million
and the purchase of the DMSC software license for $1.5 million.
Financing activities provided cash of $1.1 million during the nine-month
period ended December 31, 1999 primarily as a result of proceeds from the
exercise of stock options of $1.6 million during the period which was offset
by the repurchase of common stock of $295,000.
During the month of December 1999, we negotiated a new credit line with Union
Bank which increased our borrowing limit to $25.0 million. The expiration
date of the credit line is December 31, 2000.
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 the Company's operations through at least the end of calendar
2000.
YEAR 2000 COMPLIANCE
YEAR 2000 UPDATE
We earlier disclosed our estimate of the cost and risk associated with the
potential Y2K computer issue. We also informed you of our efforts to reduce
the risk to the Company from Y2K problems. The measures that we had
undertaken to alleviate the internal and external issues regarding potential
Y2K problems proved to be appropriate and effective. Our internal operating
systems as well as our systems in the field at customer sites have not
suffered any significant Y2K related problems that impacted operations during
the transition to the new millennium. Any issues encountered were minor and
were resolved immediately without any impact on operating systems internally
or at customer locations. However, we continue to monitor our internal and
external operations along with customer sites to ensure that these problems
have truly been resolved. There can be no assurance that issues may surface
regarding Y2K compliance, but we expect these issues, if any, to be
relatively insignificant.
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.
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 interest-bearing short term investments. Changes in interest rates
may affect the return on these investments in future periods.
15
<PAGE>
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
None.
Item 5 - OTHER INFORMATION
Any stockholder desiring to submit a proposal for action at the 2000 Annual
Meeting of Stockholders and presentation in the Company's proxy statement
with respect to such meeting should arrange for such proposal to be delivered
to the Company's offices, Attn: Secretary, Printrak International Inc., 1250
N. Tustin Avenue, Anaheim, California 92807, no later than April 15, 2000 in
order to be considered for inclusion in the Company's proxy statement
relating to the meeting. Matters pertaining to such proposals, including the
number and length thereof, eligibility of persons entitled to have such
proposals included and other aspects are regulated by the Securities Exchange
Act of 1934, Rules and Regulations of the Securities and Exchange Commission
and other laws and regulations. Interested persons should refer to these
statutes and regulations for more information.
On May 21, 1998 the Securities and Exchange Commission adopted an amendment
to Rule 14a-4(c)(1), as promulgated under the Securities and Exchange Act of
1934, as amended. The amendment governs the Company's use of its
discretionary proxy voting authority with respect to a stockholder proposal
which is not addressed in the Company's proxy statement. The new amendment
provides that if a proponent of a proposal fails to notify the Company at
least 45 days prior to the month and day of mailing of the prior year's proxy
statement, then the Company will be allowed to use its discretionary voting
authority when the proposal is raised at the meeting, without any discussion
of the matter in the proxy statement.
With respect to the Company's 2000 Annual Meeting of Stockholders, if the
Company is not provided notice of a stockholder proposal, which the
stockholder has not previously sought to include in the Company's proxy
statement, by June 30, 2000, the Company will be allowed to use its voting
authority as outlined.
16
<PAGE>
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index:
10.1 Union Bank credit line agreement.
10.2 Giles Loan Document
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any current reports on Form 8-K during the
three-month period ended December 31, 1999.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTRAK INTERNATIONAL INC.
(REGISTRANT)
BY /s/ RICHARD M. GILES
-------------------------------------------
Name: Richard M. Giles
Title: Chief Executive Officer, President
and acting Chief Financial Officer
February 12 , 1999
18
<PAGE>
EXHIBIT 10.1
FIRST AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made
and entered into as of December 15, 1999 by and between Printrak
International, Inc., a Delaware corporation ("Borrower") and UNION BANK OF
CALIFORNIA, N.A., ("Bank"). This Agreement amends and restates in its
entirety that certain amended and restated loan agreement dated July 31, 1998
between Bank and Borrower.
SECTION 1. THE LOAN
1.1.1 THE REVOLVING LOAN. Bank will loan to
Borrower an amount not to exceed Twenty Five Million Dollars ($25,000,000)
outstanding in the aggregate at any one time (the "Revolving Loan"). Borrower
may borrow, repay and reborrow all or part of the Revolving Loan in
accordance with the terms of the Revolving Note. All borrowings of the
Revolving Loan must be made before January 2, 2001, at which time all unpaid
principal and interest of the Revolving Loan shall be due and payable. The
Revolving Loan shall be evidenced by a promissory note (the "Revolving Note")
on the standard form used by Bank for commercial loans. Bank shall enter each
amount borrowed and repaid in Bank's records and such entries shall be deemed
to be the amount of the Revolving Loan outstanding. Omission of Bank to make
any such entries shall not discharge Borrower of its obligation to repay in
full with interest all amounts borrowed.
1.1.2 THE STANDBY L/C SUBLIMIT. As a sublimit to
the Revolving Loan, Bank shall issue, for the account of Borrower, one or
more irrevocable, standby letters of credit (individually, an "L/C" and
collectively, the "L/Cs"). All such standby L/Cs shall be drawn on such terms
and conditions as are acceptable to Bank. The aggregate amount available to
be drawn under all outstanding L/Cs and the aggregate amount of unpaid
reimbursement obligations under drawn L/Cs shall not exceed Ten Million
Dollars ($10,000,000) and shall reduce, dollar for dollar, the maximum amount
available under the Revolving Loan. No standby L/C shall have an expiry date
more than twelve months from its date of issuance and each L/C shall be
governed by the terms of (and Borrower agrees to execute) Bank's standard
form for standby L/C applications and reimbursement agreements. No L/C shall
expire after April 2, 2001.
1.2 TERMINOLOGY.
As used herein the word "Loan" shall mean,
collectively, all the credit facilities described above.
As used herein the word "Note" shall mean,
collectively, all the promissory notes described above.
As used herein, the words "Loan Documents"
shall mean all documents executed in connection with this Agreement.
1.3 PURPOSE OF LOAN. The proceeds of the Revolving Loan
shall be used for general working capital purposes and to finance
acquisitions, subject to the criteria set forth below: (i) Borrower shall
provide satisfactory evidence to Bank that, after giving affect to any
acquisition,
(i) Borrower is in compliance, on a pro forma basis,
with all covenants set forth in this Agreement.
(ii) After giving affect to any acquisition, Borrower
shall maintain availability on the Revolving Loan of at least
Ten Million Dollars ($10,000,000).
(iii) In the event of any acquisition wherein the
aggregate consideration paid is greater than $5 million,
Borrower shall provide satisfactory evidence to Bank that the
earnings before interest, taxes, depreciation and amortization
(EBITDA) of the entity to be acquired is greater than zero.
(iv) Any amount not funded through the Revolving Loan
shall be funded through the issuance of Printrak stock or
issuance of subordinated seller or third party debt on terms
acceptable to Bank.
- 1 -
<PAGE>
1.4 INTEREST. The unpaid principal balance of the Revolving
Loan shall bear interest at the rate as more specifically provided in the
Revolving Note. The Loan may be prepaid in full or in part only in accordance
with the terms of the Revolving Note and any such prepayment shall be subject
to the prepayment fee provided for therein.
1.5 UNUSED COMMITMENT FEE. On the last calendar day of the
third month following the execution of this Agreement and on the last
calendar day of each three-month period thereafter until January 2, 2001, or
the earlier termination of the Loan, Borrower shall pay to Bank a fee of one
quarter of one percent (.25%) per year on the average unused portion of the
Loan for the preceding quarter computed on the basis of actual days elapsed
of a year of 360 days.
1.6 CONTROLLING DOCUMENT. In the event of any inconsistency
between the terms of this Agreement and any Note or any of the other Loan
Documents, the terms of such Note or other Loan Documents will prevail over
the terms of this Agreement.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the
proceeds of the Loan unless at or prior to the time for the making of such
disbursement, the following conditions have been fulfilled to Bank's
satisfaction:
2.1 COMPLIANCE. Borrower shall have performed and complied
with all terms and conditions required by this Agreement to be performed or
complied with by it prior to or at the date of the making of such
disbursement and shall have executed and delivered to Bank the Note and other
documents deemed necessary by Bank.
2.2 BORROWING RESOLUTION. Borrower shall have provided Bank
with certified copies of resolutions duly adopted by the Board of Directors
of Borrower, authorizing this Agreement and the Loan Documents. Such
resolutions shall also designate the persons who are authorized to act on
Borrower's behalf in connection with this Agreement and to do the things
required of Borrower pursuant to this Agreement.
2.3 CONTINUING COMPLIANCE. At the time any disbursement is
to be made, there shall not exist any event, condition or act which
constitutes an event of default under Section 6 hereof or any event,
condition or act which with notice, lapse of time or both would constitute
such event of default; nor shall there be any such event, condition, or act
immediately after the disbursement were it to be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 BUSINESS ACTIVITY. The principal business of Borrower
is the development, marketing, sales of public safety and civil
identification systems and related products and services.
3.2 AFFILIATES AND SUBSIDIARIES. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling
interest or at least a 25% ownership interest) and their addresses, and the
names of Borrower's principal shareholders, are as provided on a schedule
delivered to Bank on or before the date of this Agreement.
3.3 AUTHORITY TO BORROW. The execution, delivery and
performance of this Agreement, the Note and all other agreements and
instruments required by Bank in connection with the Loan are not in
contravention of any of the terms of any indenture, agreement or undertaking
to which Borrower is a party or by which it or any of its property is bound
or affected.
3.4 FINANCIAL STATEMENTS. The financial statements of
Borrower,including both a balance sheet at September 30, 1999, together with
supporting schedules, and an income statement for the nine (9) months ended
September 30, 1999, have heretofore been furnished to Bank, and are true and
complete and fairly represent the financial condition of Borrower during the
period covered thereby. Since September 30, 1999, there has been no material
adverse change in the financial condition or operations of Borrower.
- 2 -
<PAGE>
3.5 TITLE. Except for assets which may have been disposed
of in the ordinary course of business, Borrower has good and marketable title
to all of the property reflected in its financial statements delivered to
Bank and to all property acquired by Borrower since the date of said
financial statements, free and clear of all liens, encumbrances, security
interests and adverse claims except those specifically referred to in said
financial statements.
3.6 LITIGATION. There is no litigation or proceeding
pending or threatened against Borrower or any of its property which is
reasonably likely to affect the financial condition, property or business of
Borrower in a materially adverse manner or result in liability in excess of
Borrower's insurance coverage.
3.7 DEFAULT. Borrower is not now in default in the payment
of any of its material obligations, and there exists no event, condition or
act which constitutes an event of default under Section 6 hereof and no
condition, event or act which with notice or lapse of time, or both, would
constitute an event of default.
3.8 ORGANIZATION. Borrower is duly organized and existing
under the laws of the state of its organization, and has the power and
authority to carry on the business in which it is engaged and/or proposes to
engage.
3.9 POWER. Borrower has the power and authority to enter
into this Agreement and to execute and deliver the Note and all of the other
Loan Documents.
3.10 AUTHORIZATION. This Agreement and all things required
by this Agreement have been duly authorized by all requisite action of
Borrower.
3.11 QUALIFICATION. Borrower is duly qualified and in good
standing in any jurisdiction where such qualification is required.
3.12 COMPLIANCE WITH LAWS. Borrower is not in violation
with respect to any applicable laws, rules, ordinances or regulations which
materially affect the operations or financial condition of Borrower.
3.13 ERISA. Any defined benefit pension plans as defined in
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of
Section 302 of ERISA, and no Reportable Event or Prohibited Transaction as
defined in ERISA has occurred with respect to any such plan.
3.14 REGULATION U. No action has been taken or is currently
planned by Borrower, or any agent acting on its behalf, which would cause
this Agreement or the Note to violate Regulation U or any other regulation of
the Board of Governors of the Federal Reserve System or to violate the
Securities and Exchange Act of 1934, in each case as in effect now or as the
same may hereafter be in effect. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock as
one of its important activities and none of the proceeds of the Loan will be
used directly or indirectly for such purpose.
3.15 CONTINUING REPRESENTATIONS. These representations
shall be considered to have been made again at and as of the date of each
disbursement of the Loan and shall be true and correct as of such date or
dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or
any other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
4.1 USE OF PROCEEDS. Borrower will use the proceeds of the
Loan only as provided in subsection 1.3 above.
4.2 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge
promptly all taxes, assessments and other governmental charges and claims
levied or imposed upon it or its property, or any part thereof, provided,
however, that Borrower shall have the right in good faith to contest any such
taxes, assessments, charges or claims and, pending the outcome of such
contest, to delay or refuse payment thereof provided that adequately funded
reserves are established by it to pay and discharge any such taxes,
assessments, charges and claims.
- 3 -
<PAGE>
4.3 MAINTENANCE OF EXISTENCE. Borrower will maintain and
preserve its existence and assets and all rights, franchises, licenses and
other authority necessary for the conduct of its business and will maintain
and preserve its property, equipment and facilities in good order, condition
and repair. Bank may, at reasonable times, visit and inspect any of the
properties of Borrower.
4.4 RECORDS. Borrower will keep and maintain full and
accurate accounts and records of its operations according to generally
accepted accounting principles and will permit Bank to have access thereto,
to make examination and photocopies thereof, and to make audits during
regular business hours. Costs for such audits shall be paid by Borrower.
4.5 INFORMATION FURNISHED. Borrower will furnish to
Bank:
(a) Within forty five (45) days after the close of
each fiscal quarter, except for the final quarter of each fiscal year, its
unaudited balance sheet as of the close of such fiscal quarter, its unaudited
income and expense statement with supportive schedules and statement of
retained earnings for that fiscal quarter, prepared in accordance with
generally accepted accounting principles;
(b) Within ninety (90) days after the close of
each fiscal year, a copy of its statement of financial condition including at
least its balance sheet as of the close of such fiscal year, its income and
expense statement and retained earnings statement for such fiscal year,
examined and prepared on audited basis by independent certified public
accountants selected by Borrower and reasonably satisfactory to Bank, in
accordance with generally accepted accounting principles applied on a basis
consistent with that of the previous year;
(c) Within forty five (45) days after the close of
each fiscal quarter, a summary report representing the aggregate dollar value
of orders with estimated shipment dates occurring within a twelve (12) month
period following the immediately preceding fiscal quarter.
(d) Such other financial statements and
information, including due diligence information and materials related to any
acquisition, as Bank may reasonably request from time to time;
(e) In connection with each financial statement
provided hereunder, a certification of compliance and a statement executed by
an authorized corporate officer of Borrower, certifying that no default has
occurred and no event exists which with notice or the lapse of time, or both,
would result in a default hereunder;
(f) Prompt written notice to Bank of all events of
default under any of the terms or provisions of this Agreement or of any
other agreement, contract, document or instrument entered, or to be entered
into with Bank; and of any litigation which, if decided adversely to
Borrower, would have a material adverse effect on Borrower's financial
condition; and of any other matter which has resulted in, or is likely to
result in, a material adverse change in its financial condition or operations;
4.6 QUICK RATIO. Borrower will all times maintain a ratio
of cash, accounts receivable and marketable securities to current
liabilities, less deferred revenues classified as current liabilities on
Borrower's balance sheet as of said period,of not less than 1.5:1.0, as such
terms are defined by generally accepted accounting principles.
4.7 TANGIBLE NET WORTH. Until March 31, 2000, Borrower will
at all times maintain Tangible Net Worth of not less than Thirty Million
Dollars ($30,000,000). Thereafter, Borrower will at all times maintain a
minimum Tangible Net Worth that increases from said amount as of the end of
Borrower's fiscal year by 100% percent (100%) of Borrower's net profit after
taxes. "Tangible Net Worth" shall mean net worth increased by indebtedness of
Borrower subordinated to Bank and decreased by patents, licenses, trademarks,
trade names, goodwill and other similar intangible assets, organizational
expenses, and monies due from affiliates (including officers, shareholders
and directors).
4.8 RATIO OF FUNDED DEBT TO EBITDA. Borrower will at all
times maintain a ratio of Funded Debt to EBITDA of not greater than 1.75:1.0.
"Funded Debt" shall mean any indebtedness of a contractual nature or
otherwise, including any loans, capital leases and any amounts outstanding on
the Revolving Loan, excluding accounts payable or accrued liabilities in the
ordinary course of business.
- 4 -
<PAGE>
4.9 EBITDA. Borrower will at all times maintain EBITDA of
not less than Nine Million Five Hundred Thousand Dollars. For the purposes of
Sections 4.8 and 4.9, "EBITDA" shall mean the sum of Borrowers earnings
before interest, taxes, depreciation and amortization for the four fiscal
quarters immediately preceding the date of such calculation.
4.10 INSURANCE. Borrower will keep all of its insurable
property, real, personal or mixed, insured by companies and in amounts
approved by Bank against fire and such other risks, and in such amounts, as
is customarily obtained by companies conducting similar business with respect
to like properties. Borrower will furnish to Bank statements of its insurance
coverage, will promptly furnish other or additional insurance deemed
necessary by and upon request of Bank to the extent that such insurance may
be available and hereby assigns to Bank, as security for Borrower's
obligations to Bank, the proceeds of any such insurance. Prior to any
disbursement of the Loan, Bank will be named loss payee on all policies
insuring collateral and such policies shall require at least ten (10) days'
written notice to Bank before any policy may be altered or cancelled.
Borrower will maintain adequate worker's compensation insurance and adequate
insurance against liability for damage to persons or property.
4.11 ADDITIONAL REQUIREMENTS. Borrower will promptly, upon
demand by Bank, take such further action and execute all such additional
documents and instruments in connection with this Agreement as Bank in its
reasonable discretion deems necessary, and promptly supply Bank with such
other information concerning its affairs as Bank may request from time to
time.
4.12 LITIGATION AND ATTORNEYS' FEES. Borrower will pay
promptly to Bank upon demand, reasonable attorneys' fees (including but not
limited to the reasonable estimate of the allocated costs and expenses of
in-house legal counsel and legal staff) and all costs and other expenses paid
or incurred by Bank in collecting, modifying or compromising the Loan or in
enforcing or exercising its rights or remedies created by, connected with or
provided for in this Agreement or any of the Loan Documents, whether or not
an arbitration, judicial action or other proceeding is commenced. If such
proceeding is commenced, only the prevailing party shall be entitled to
attorneys' fees and court costs.
4.13 BANK EXPENSES. Borrower will pay or reimburse Bank for
all costs, expenses and fees incurred by Bank in preparing and documenting
this Agreement and the Loan, and all amendments and modifications thereof,
including but not limited to all filing and recording fees, costs of
appraisals, insurance and attorneys' fees, including the reasonable estimate
of the allocated costs and expenses of in-house legal counsel and legal staff.
4.14 REPORTS UNDER PENSION PLANS. Borrower will furnish to
Bank, as soon as possible and in any event within 15 days after Borrower
knows or has reason to know that any event or condition with respect to any
defined benefit pension plans of Borrower described in Section 3 above has
occurred, a statement of an authorized officer of Borrower describing such
event or condition and the action, if any, which Borrower proposes to take
with respect thereto.
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement
or any other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
5.1 ENCUMBRANCES AND LIENS. Borrower will not create,
assume or suffer to exist any mortgage, pledge, security interest,
encumbrance, or lien (other than for taxes not delinquent and for taxes and
other items being contested in good faith) on property of any kind, whether
real, personal or mixed, now owned or hereafter acquired, or upon the income
or profits thereof, except to Bank and except for minor encumbrances and
easements on real property which do not affect its market value, and except
for existing liens on Borrower's personal property and future purchase money
security interests encumbering only the personal property purchased.
5.2 BORROWINGS. Borrower will not sell, discount or
otherwise transfer any account receivable or any note, draft or other
evidence of indebtedness, except to Bank or except to a financial institution
at face value for deposit or collection purposes only and without any fee
other than fees normally charged by the financial institution for deposit or
collection services. Borrower will not borrow any money, become contingently
liable to borrow money, nor enter any agreement to directly or indirectly
obtain borrowed money, except pursuant to agreements made with Bank.
- 5 -
<PAGE>
5.3 SALE OF ASSETS, LIQUIDATION OR MERGER. Borrower will
neither liquidate nor dissolve nor enter into any consolidation, merger,
partnership or other combination, nor convey, nor sell, nor lease all or the
greater part of its assets or business, nor purchase or lease all or the
greater part of the assets or business of another; provided, however,
Borrower may acquire, merge or consolidate with another corporation, subject
to the terms below and in Section 1.4 of this agreement, so long as Borrower
is the surviving corporation and the aggregate consideration paid for such
acquisition does not exceed Ten Million Dollars ($10,000,000).
5.4 LOANS, ADVANCES AND GUARANTIES. Borrower will not,
except in the ordinary course of business as currently conducted, make any
loans or advances, become a guarantor or surety, pledge its credit or
properties in any manner or extend credit.
5.5 INVESTMENTS. Borrower will not purchase the debt or
equity of another person or entity except for savings accounts and
certificates of deposit of Bank, direct U.S. Government obligations and
commercial paper issued by corporations with the top ratings of Moody's or
Standard & Poor's, provided all such permitted investments shall mature
within one year of purchase.
5.6 PAYMENT OF DIVIDENDS. Borrower will not declare or pay
any dividends, other than a dividend payable in its own common stock, or
authorize or make any other distribution with respect to any of its stock now
or hereafter outstanding.
5.7 RETIREMENT OF STOCK. Borrower will not acquire or
retire any share of its capital stock for value, except to the extent that
such purchases do not exceed Two Million Dollars ($2,000,000) in the
aggregate.
5.8 PARENT AND SUBSIDIARY PROPERTY. Borrower will not
transfer any property to its parent or any affiliate of its parent, except
for value received in the normal course of business as business would be
conducted with an unrelated or unaffiliated entity. In no event shall
management fees or fees for services be paid by Borrower to any such direct
or indirect affiliate without Bank's prior written approval.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default")
shall terminate any obligation on the part of Bank to make or continue the
Loan and automatically, unless otherwise provided under the Note, shall make
all sums of interest and principal and any other amounts owing under the Loan
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor, or any other
notices or demands:
6.1 Borrower shall default in the due and punctual payment
of the principal of or the interest on the Note or any of the other Loan
Documents; or
6.2 Any default shall occur under the Note; or
6.3 Borrower shall default in the due performance or
observance of any covenant or condition of the Loan Documents; or
6.4 Any guaranty or subordination agreement required
hereunder is breached or becomes ineffective, or any Guarantor or
subordinating creditor dies, disavows or attempts to revoke or terminate such
guaranty or subordination agreement; or
6.5 There is a change in ownership or control of ten
percent (10%) or more of the issued and outstanding stock of Borrower or any
Guarantor, or (if Borrower is a partnership) there is a change in ownership
or control of any general partner's interest.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 ADDITIONAL REMEDIES. The rights, powers and remedies
given to Bank hereunder shall be cumulative and not alternative and shall be
in addition to all rights, powers and remedies given to Bank by law against
Borrower or any other person, including but not limited to Bank's rights of
setoff or banker's lien.
7.2 NONWAIVER. Any forbearance or failure or delay by Bank
in exercising any right, power or remedy hereunder shall not be deemed a
waiver thereof and any single or partial exercise of any right, power or
remedy shall not preclude the further exercise thereof. No waiver shall be
effective unless it is in writing and signed by an officer of Bank.
7.3 INUREMENT. The benefits of this Agreement shall inure
to the successors and assigns of Bank and the permitted successors and
assignees of Borrower, and any assignment by Borrower without Bank's consent
shall be null and void.
- 6 -
<PAGE>
7.4 APPLICABLE LAW. This Agreement and all other agreements
and instruments required by Bank in connection therewith shall be governed by
and construed according to the laws of the State of California.
7.5 SEVERABILITY. Should any one or more provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective. In the event of any conflict between the
provisions of this Agreement and the provisions of any note or reimbursement
agreement evidencing any indebtedness hereunder, the provisions of such note
or reimbursement agreement shall prevail.
7.6 INTEGRATION CLAUSE. Except for documents and
instruments specifically referenced herein, this Agreement constitutes the
entire agreement between Bank and Borrower regarding the Loan and all prior
communications verbal or written between Borrower and Bank shall be of no
further effect or evidentiary value.
7.7 CONSTRUCTION. The section and subsection headings
herein are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
7.8 AMENDMENTS. This Agreement may be amended only in
writing signed by all parties hereto.
7.9 COUNTERPARTS. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original,
but when together shall be one and the same instrument.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or
allowed hereunder shall be effective only when given by one of the following
methods and addressed to the respective party at its address given with the
signatures at the end of this Agreement and shall be considered to have been
validly given: (a) upon delivery, if delivered personally; (b) upon receipt,
if mailed, first class postage prepaid, with the United States Postal
Service; (c) on the next business day, if sent by overnight courier service
of recognized standing; and (d) upon telephoned confirmation of receipt, if
telecopied.
8.2 The addresses to which notices or demands are to be
given may be changed from time to time by notice delivered as provided above.
THIS AGREEMENT is executed on behalf of the parties by duly
authorized officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A.
By: _________________________________
Title: ______________________________
By: _________________________________
Title: ______________________________
500 South Main Street
Suite 200
Orange, CA 92868
Telecopier: (714) 565-5725
Telephone: (714) 565-5585
Attention: Kim Ha, Vice President
PRINTRAK INTERNATIONAL INC.
By: _________________________________
Title _______________________________
1250 North Tustin Avenue
Anaheim, CA 92807
Telephone:(714) 238-2039
Telecopier:(714) 238-2049
Attention: Dave T. Okazaki, Controller and Corporate Secretary
- 7 -
<PAGE>
EXHIBIT 10.2
GILES LOAN DOCUMENT
SECURED PROMISSORY NOTE
$100,000 OCTOBER 15, 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 One Hundred Thousand
Dollars ($100,000).
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 15, 2001.
2. RATE OF INTEREST. Interest shall accrue under the Note on any
unpaid principal balance at a rate per annum equal to with lesser of 5.54% 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 (10) 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 termination of Richard M. Giles' employment with the
Company; or
(d) the liquidation of the Borrower.
5. COLLECTION. If action is instituted to collect this Note, each of
Borrower and Richard M. Giles promises to pay all reasonable costs and
expenses (including reasonable attorneys fees) incurred in connection with
such action.
6. WAIVER. No previous waiver and no failure or delay by the Company
or in acting with respect to the terms of this Note shall constitute a waiver
of any breach, default, or failure or condition under this Note. Any waiver
must be made in writing and shall be limited to the express terms of such
waiver. Each of 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.
<PAGE>
7. 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.
8. 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
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,288,000
<SECURITIES> 0
<RECEIVABLES> 29,019,000
<ALLOWANCES> (444,000)
<INVENTORY> 12,573,000
<CURRENT-ASSETS> 61,292,000
<PP&E> 13,202,000
<DEPRECIATION> (9,931,000)
<TOTAL-ASSETS> 73,619,000
<CURRENT-LIABILITIES> 33,373,000
<BONDS> 473,000
0
0
<COMMON> 1,000
<OTHER-SE> 39,772,000
<TOTAL-LIABILITY-AND-EQUITY> 73,619,000
<SALES> 65,298,000
<TOTAL-REVENUES> 81,734,000
<CGS> 40,459,000
<TOTAL-COSTS> 72,691,000
<OTHER-EXPENSES> (321,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,000
<INCOME-PRETAX> 9,336,000
<INCOME-TAX> 3,746,000
<INCOME-CONTINUING> 5,590,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,590,000
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.47
</TABLE>
