-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ae4UNUr0b5KGj/8SYfjoAovoUJxQZbcVV4VJ5ezG0F1hPzHUcbhnwqEECBWu3oXt LBlxCue0Yqz+Vs1E/GOsbw== 0000028365-97-000001.txt : 19970222 0000028365-97-000001.hdr.sgml : 19970222 ACCESSION NUMBER: 0000028365-97-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961230 FILED AS OF DATE: 19970214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DETECTION SYSTEMS INC CENTRAL INDEX KEY: 0000028365 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 160958589 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08125 FILM NUMBER: 97536427 BUSINESS ADDRESS: STREET 1: 130 PERINTON PKWY CITY: FAIRPORT STATE: NY ZIP: 14450 BUSINESS PHONE: 7162234060 MAIL ADDRESS: STREET 1: 130 PERINTON PARKWAY CITY: FAIRPORT STATE: NY ZIP: 14450 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 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: 0-8125 ---------------------------- DETECTION SYSTEMS, INC. (Exact name of registrant as specified in its charter) State of New York 16-0958589 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 130 Perinton Parkway, Fairport, New York 14450 (Address of principal executive offices) (Zip Code) (716) 223-4060 (Registrant's telephone number, including area code) ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes __X__ No _____ As of February 7, 1997, there were outstanding 4,467,380 shares of the registrant's common stock, par value $.05 per share. PART I FINANCIAL INFORMATION DETECTION SYSTEMS, INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) ASSETS Dec. 31, 1996 Mar. 31, 1996 Current Assets: ------------- ------------- Cash & cash equivalents $ 889,982 $ 913,716 Short-term investments, at cost, which approximates market value 16,626 16,296 Accounts receivable, less allowance for doubtful accounts of $100,000 14,704,990 10,482,660 Inventories 24,243,171 14,065,843 Income tax receivable 435,471 532,895 Deferred income tax charges 1,554,900 1,554,900 Prepaid expenses and other assets 1,149,485 860,018 ----------- ----------- Total Current Assets 42,994,625 28,426,328 Fixed assets at cost 19,130,237 16,767,326 Less accumulated depreciation 11,485,272 9,681,969 ----------- ----------- 7,644,965 7,085,357 Property under capital lease 4,714,854 4,760,810 Less accumulated depreciation 2,367,276 2,269,335 ----------- ----------- 2,347,578 2,491,475 Deferred Income Taxes 3,983,200 3,983,200 Goodwill and other intangibles 4,140,438 3,762,327 Other assets 636,878 148,891 ----------- ----------- Total Assets 61,747,684 45,897,578 LIABILITIES Current Liabilities Current portion of long-term debt and capital lease obligations 123,924 559,860 Accounts payable 11,332,659 6,231,737 Accrued payroll & benefits 2,921,187 1,566,777 Short term borrowings 6,441,450 1,183,750 Other accrued liabilities 2,923,237 3,171,914 ----------- ----------- Total Current Liabilities 23,742,457 12,714,038 Obligations under capital leases 94,618 186,471 Other long term liabilities 1,931,900 1,931,900 Long term debt 17,750,000 17,750,000 Deferred compensation 1,729,217 1,745,886 Shareholders' Equity Common stock, par value $.05 per share Authorized 12,000,000 shares Issued 4,456,430 shares at 12/31/96 and 2,811,361 shares at 3/31/96 222,869 140,568 Capital in excess of par value 9,338,306 6,964,570 Retained earnings 7,361,705 4,869,022 ---------- ---------- 16,922,880 11,974,160 Less: Treasury stock, 2,487 at 12/31/96 at cost and 2,207 shares at 3/31/96 (38,777) (12,363) at cost) Notes receivable for stock purchases (384,611) (392,514) ---------- ----------- 16,499,492 11,569,283 ----------- ----------- Total Liabilities & Shareholders' Equity $61,747,684 $45,897,578 =========== =========== See accompanying notes to financial information.
DETECTION SYSTEMS, INC. AND SUBSIDIARIES Consolidated Income Statement (Unaudited) For the Three Months Ended: Dec. 31, 1996 Dec. 31, 1995 (Current Year) (Preceding Year) -------------- --------------- Gross sales less discounts, returns and allowances $26,441,837 $ 8,563,799 Other revenue 54,270 38,228 ---------- ---------- Total revenue 26,496,107 8,602,027 Costs and expenses: Production 17,366,386 5,991,708 Development 2,046,418 1,094,505 Marketing, admin. & gen. 5,165,390 2,164,194 Interest expenses 464,645 42,435 ---------- ---------- Total costs and expenses 25,042,839 9,292,842 Income (loss) before taxes 1,453,268 (690,815) Provision for (benefit from) taxes 379,000 (95,000) ---------- ---------- Net (loss) income 1,074,268 (595,815) Retained earnings at beginning of period $6,287,437 $12,821,776 Dividends none none Retained earnings at end of period $7,361,705 $12,225,961 Net Income (Loss) Per Share $0.22 ($0.14) ===== ===== (See accompanying notes to financial information)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES Consolidated Income Statement (Unaudited) For the Nine Months Ended: Dec. 31, 1996 Dec. 31, 1995 (Current Year) (Preceding Year) -------------- -------------- Gross sales less discounts, returns and allowances $74,485,802 $26,654,524 Other revenue 106,039 204,735 ---------- ---------- Total revenue 74,591,841 26,859,259 Costs and expenses: Production 49,309,576 17,134,401 Development 5,803,833 3,091,647 Marketing, admin. & gen. 14,635,291 6,660,589 Interest expenses 1,332,458 139,926 ---------- ---------- Total costs and expenses 71,081,158 27,026,563 Income (loss) before taxes 3,510,683 (167,304) Provision for taxes 1,018,000 331,000 ---------- ---------- Net income (loss) 2,492,683 (498,304) Retained earnings at beg. of period $ 4,869,022 $12,724,265 Dividends none none Retained earnings at end of period $7,361,705 $12,225,961 ========== ========== Net Income (Loss) Per Share $0.52 ($0.10) ==== ==== (See accompanying notes to financial information)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows (Unaudited) For the Nine Months Ended December 31, 1996 1995 ---- ---- Cash Flows from Operating Activities: Net (loss) Income $2,492,683 ($498,304) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,901,244 1,196,270 Fixed asset retirements 0 2,682 Change in obsolescence reserve 50,000 0 Deferred compensation (16,669) 194,633 Change in assets and liabilities: Accounts receivable (4,222,330) (1,018,931) Inventories (10,227,328) (3,108,333) Income tax receivable 97,424 (749,440) Prepaid expenses and other assets (289,467) (196,544) Accounts payable 5,100,922 887,662 Accrued payroll and benefits 1,354,410 (377,721) Other accrued liabilities (248,677) 23,388 Deferred income taxes 0 (73,900) Goodwill and other assets (866,098) 0 ---------- ---------- Total adjustments (7,366,569) (3,220,234) ---------- ---------- Net cash used in operating activities (4,873,886) (3,718,538) Cash flows from investing activities: Capital expenditures (2,316,955) (2,872,006) Short-term investments (330) 2,437,842 ---------- ---------- Net cash used in investing activities (2,317,285) (434,164) Cash flows from financing activities: Proceeds from short term borrowings 5,257,700 850,000 Proceeds from private equity placement 2,000,005 0 Principal payments on long-term debt and capital lease obligations (527,789) (341,925) Common stock transactions 437,521 215,686 ---------- ---------- Net cash provided by financing activities 7,167,437 723,761 Net increase(decrease) in cash and cash equivalents (23,734) (3,428,941) Cash and cash equivalents at beginning of period 913,716 4,580,751 ---------- ---------- Cash and cash equivalents at end of period $889,982 $1,151,810 ========== ========== Cash paid during the period for: Interest 976,235 36,216 Income taxes 585,155 1,090,327 Noncash transactions: The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. See accompanying notes to financial information.
DETECTION SYSTEMS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NINE-MONTH PERIOD ENDED December 31, 1996 (Unaudited) BASIS OF PRESENTATION: The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes which are normally included in Form 10-K and the annual report to shareholders. The financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of results for the interim periods. INVENTORIES Major classifications of inventory follow: Dec. 31 1996 March 31, 1996 ------------- -------------- Component Parts 15,299,612 6,408,670 Work In Process 798,250 705,473 Finished Products 8,145,309 6,951,700 - --------- --------- 24,243,171 14,065,843 ========== ========= DETECTION SYSTEMS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Late in fiscal 1995, the Company launched a major initiative to extend its market reach on a world wide basis. Since that time sales offices have been opened in Australia, France, Hong Kong, China and the United Kingdom, in addition to the establishment of distribution arrangements in over 25 additional countries. As part of an effort to expand its product catalog, Detection Systems purchased Radionics for approximately $18 million in February 1996. This acquisition had a significant impact on the comparative information for the three and nine month periods ended December 31, 1996 versus the same periods ended December 31, 1995, both for the results of operations as well as for asset and liability balances. Net sales for the three and nine month periods ended December 31, 1996 increased $17.9 million and $47.8 million, respectively, as compared to the same periods one year ago. Net sales for the three and nine month periods ended December 31, 1995 as compared to the same periods ended December 31, 1994, decreased $.9 million and increased $.4 million, respectively. The addition of Radionics and the growth of sales since the acquisition accounted for $13.7 million and $38.6 million, respectively, of the 1996 increases. International sales increased substantially for the three and nine month periods ended December 31, 1996, as compared with the same periods a year ago. Sales have also benefited from the Company's broader customer base and the synergies associated with the combined companies. The decrease in net sales for the three month period ended December 31, 1995 versus the three month period ended December 31, 1994 was due to a change in national account sales activity. The increase for the nine months ended December 31, 1995 versus the same period ended December 31, 1994 was attributable to the growing international business. Gross profit margins on sales improved for the three month period ended December 31, 1996 as compared with the three month period ended December 31, 1995. This reflected cost savings associated with the transitioning of a portion of Detection Systems' and Radionics' product manufacturing to the Company's Southeast Asia facility. Additional savings resulted from the Company's increased purchasing base. Gross profit margins declined in the nine month period ended December 31, 1996 compared to the equivalent year ago period. This resulted from expenses associated with the start up of the Southeast Asia manufacturing facility. The Company believes gross profit margins should continue to improve as a result of the more efficient use of its Southeast Asia facility. Margins should also be positively impacted by several negotiated cost improvements which took effect late in the second quarter. Gross profit margins on sales for the three and nine month periods ended December 31, 1995 versus the same periods ended December 31, 1994 declined because of expenses associated with the startup of the Southeast Asia facility. Other income increased slightly for the three month period ended December 31, 1996 and declined by 48.2% for the nine month period ended December 31, 1996 as compared to the prior year ago periods. The increase was attributable to the timing of investments during the quarter. The decrease represents the Company's reduction in amounts available for investments. Other income also decreased for the three and nine month periods ended December 31, 1995 as compared with the equivalent year ago periods, due to decreases in funds available for investment. Production expenses increased $11.4 million and $32.2 million for the three and nine month periods ended December 31, 1996 as compared to the three and nine month periods ended December 31, 1995. These increases were primarily attributable to Radionics' cost of sales and other manufacturing costs. The transitioning of manufacturing among the Company's manufacturing facilities in New York, California and Southeast Asia has continued to increase total production costs. However, these costs should diminish as the transitioning is completed. Production expenses for the three and nine month periods ended December 31, 1995 increased 5.9% and 7.5% as compared with the equivalent year ago periods. These increases were primarily attributable to the start up of the Southeast Asia manufacturing facility. Development expenses increased $1.0 million and $2.7 million for the three and nine month periods ended December 31, 1996 as compared with the same periods in the prior year. These increases were primarily attributable to the Company's acquisition of Radionics and the associated expansion of the Company's research and development efforts. The increases also include the cost of transitioning Radionics' California-based engineering function to the Company's New York, facility. The Company expects to spend between $7.5 million and $8.0 million on research and development efforts in fiscal 1997. Development expenses for the three and nine months ended December 31, 1995 remained consistent with those for the prior year periods. Marketing, administrative and general expenses for the three and nine month periods ended December 31, 1996 versus the comparable periods ended December 31, 1995, increased by $3.0 million and $8.0 million, respectively. These increases were primarily due to the acquisition of Radionics. They were impacted to a lesser extent by the Company's international sales initiative. The increases of $.4 million and $1.6 million for the three and nine months periods ended December 31, 1995 versus the comparable year ago periods were also primarily due to the Company's international start up. Interest expense increased approximately $.4 million and $1.2 million for the three and nine months ended December 31, 1996 compared to the equivalent periods one year ago. These increases were due to the debt financing of the Radionics' acquisition. In addition, the Company has increased its inventory levels during the third fiscal quarter of this year to meet customer demand which was partially financed through borrowings from the Company's line of credit. Interest expense increased slightly for the three and nine month periods ended December 31, 1995 versus the same periods ended December 31, 1994. These increases were due to temporary working capital borrowings utilized during the year. Income before taxes was $1,453,000, -$691,000 and $912,000 for the three month periods ended December 31, 1996, 1995 and 1994, respectively. For the nine month periods ended December 31, 1996, 1995 and 1994, income before taxes was $3,511,000, -$167,000 and $2,362,000. Results in 1996 improved compared to 1995 due to higher sales volumes and reduced costs associated with international operations. Results in 1995 as compared to 1994 decreased due to the full expensing of the Company's international start-up costs. The Company's effective tax rates for the three and nine month periods ended December 31, 1996 were 26.1% and 29.0%, respectively. The lower tax rates reflect the utilization of loss carryforwards for last fiscal year on losses derived on international operations as well as more favorable tax rates associated with the Company's Southeast Asia operations. The comparative effective tax rates for the three and nine months ended December 31, 1995 were 13.8% and 197.8%, respectively. These higher rates are reflective of the Company's inability to utilize certain subsidiary losses during consolidation. The Company's effective tax rates for the three and nine months ended December 31, 1994 were 37.6% and 37.0%, respectively. These rates were reflective of the statutory rates in effect for the Company's domestic operations. FINANCIAL CONDITION At December 31, 1996, the Company had net working capital of $19.3 million, including approximately $.9 million in cash, cash equivalents and short term investments. This compares to net working capital of approximately $15.7 million including $.9 million in cash, cash equivalents and short term investments at March 31, 1996. Operations for the nine month period ended December 31, 1996 used net cash of approximately $4.9 million. The Company had a $6.5 million bank commitment for a revolving line of credit facility that extends into fiscal 1999. This commitment includes an interest rate based on the London Interbank Offered Rate plus applicable points based on the Company's performance. The balance becomes fully due and payable on May 31, 1998. At December 31, 1996, the Company had short term borrowings of $6.4 million from this line of credit. Effective January 27, 1997, the Company's line of credit was increased to $11.5 million. The Company secured an additional $5.5 million revolving line of credit which mirrors the provisions and covenants of the initial $6.5 million facility. The Company believes that current levels of cash, cash equivalents and short term investments, together with its available line of credit, will meet its foreseeable working capital needs. In October of 1996, the Company sold approximately 114,000 shares of its common stock for $2.0 million to five corporate pension funds. The proceeds from this private placement were used for working capital to fund the Company's current growth. The Company expects to continue expenditures on the development of new products and markets. These expenditures will include continued investment in security detection, fire detection, access control and CCTV products. The Company's effort to market its products internationally will continue as well. To meet customer demand for its products, the Company added a third production line to its Southeast Asia manufacturing facility in October of 1996 and expects to have a fourth production line operational by the end of February 1997. Funding for these expenditures have and will be financed through the Company's revolving line of credit facility. At December 31, 1996, accounts receivable increased 40.3% from the March 31, 1996 level. This increase was attributable to the higher sales volume achieved during the third fiscal quarter. The Company's standard credit terms are net 30 days, with variations depending on volume, pricing and prepayment discounts. Inventories increased 72.4% at December 31, 1996 as compared to March 31, 1996. This increase was primarily attributable to the transition of manufacturing to the Company's Southeast Asia facility, while maintaining production capability in the Company's domestic manufacturing facilities in Fairport, NY, and Salinas, CA. In addition, the Company has initiated an inventory build up plan to allow it to better meet its customers increasing product needs. Prepaid expenses and other assets increased by approximately $289,000 from the March 31, 1996 level. This increase was attributable to prepayment of premiums for certain benefits. At December 31, 1996, accounts payable increased 81.9% as compared to the March 31, 1996 level. This increase is the result of a tighter cash management program and payment terms more reflective of the industry average. Accrued payroll and benefits increased by $1,354,000 at December 31, 1996 versus the March 31, 1996 level. This increase was attributable to the accrual of performance bonuses for fiscal 1997. Other accrued liabilities at December 31, 1996, remained consistent with the March 31, 1996 level. On November 8, 1996, the Company announced a 3 for 2 stock split. The stock distribution was made on December 17, 1996 to shareholders of record as of November 27, 1996. Fractional shares were paid in cash. After the split, approximately 4,450,000 shares of common stock were outstanding. PART II OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 4. Submission of Matters to a Vote of Security Holders. Not applicable Item 5. Other matters In October of 1996, the Company sold approximately 114,000 common shares for $2.0 million to five corporate pension funds. The proceeds of this private placement will be used for working capital. A Form S- 3 registration statement was subsequently filed with respect to the registration of these shares. In consideration for services rendered in conjunction with the above private placement, the Company granted a 1,500 share warrant (post- split) on November 7, 1996 to purchase its common stock at a per share price that approximated fair market value on the date of award. Said shares are exercisable in full or in part over a 5-year period upon payment of the purchase price. These securities have been been registered with the Securities and Exchange Commission in reliance upon exemption by Section 4(2) of the Securities Act of 1933. The total cost for the warrant was $20,250. On November 7, 1996, the Company's Board of Directors approved a 3 for 2 stock split in the form of a stock distribution of one share for every two shares owned. The stock distribution will be made on December 17, 1996 to shareholders of record as of November 27, 1996. Fractional shares were paid in cash. After the split, approximately 4,450,000 shares of common stock were outstanding. Item 6. Exhibits and Reports for Form 8-K. A. Exhibits See Exhibit Index B. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1996. SIGNATURES 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. DETECTION SYSTEMS, INC. Registrant DATE: February 14, 1997 By: /s/ Karl H. Kostusiak Karl H. Kostusiak, President By: /s/ Frank J. Ryan Frank J. Ryan, Vice President, Secretary and Treasurer (Chief Financial & Accounting Officer) EXHIBIT INDEX (3i) Text of the Certification of Incorporation, as amended. Incorporated by reference to Exhibit 3a to the registrants Form 10-K dated June 25, 1993. (3i) Certificate of Amendment of Certificate of Incorporation as filed with New York Secretary of State. Incorporated by reference to Exhibit 3a to the registrants Form 10-K dated June 25, 1993. (3ii) The text of the registrant's By-laws, as amended, are incorporated by reference to Exhibit 3b to the Company's Report on Form 10-K dated June 25, 1993. (10) Executive Employment Agreements are incorporated by reference to Exhibit 10 of the registrant's Report on Form 10-K/A dated July 12, 1996. (11) Statement regarding computation of per share earnings. See Exhibit 11. (27) Financial data schedule. Included as Exhibit 27 to electronic Edgar filing only. Exhi bit 11 DETE CTION SYSTEMS, INC. AND SUBSIDIARIES Consolidated Computation of Net Income Per Common And Common Equivalent Share For the Three Months Ended: Dec. 31, 1996 Dec. 31, 1995 Net Income $1,074,268 ($595,815) ADD - Interest on deferred compensation 17,319 15,550 ------- -------- Adjusted net income applicable to common stock $1,091,587 ($580,265) Number of Shares: Weighted average number of shares 4,451,985 4,208,081 Common Stock equivalent due to assumed exercise of stock options and warrants and deferred compensation plan shares 582,297 0 --------- --------- 5,034,282 4,208,081 Net Income per Common and Common Equivalent share $0.22 ($0.14) For the Nine Months Ended: Dec. 31,1996 Dec. 31,1995 Net Income $2,492,683 ($498,304) ADD - Interest on deferred compensation 49,845 50,692 ------- --------- Adjusted net income applicable to common stock $2,542,528 ($447,612) Number of Shares: Weighted average number of shares 4,323,032 4,208,081 Common Stock equivalent due to assumed exercise of stock options and warrants and deferred compensation plan shares 563,242 118,057 --------- --------- 4,886,274 4,326,138 Net Income per Common and Common Equivalent share $0.52 ($0.10)
EX-27 2
5 3-MOS MAR-31-1997 DEC-31-1996 889,982 0 14,704,990 (100,000) 24,243,171 42,994,625 23,845,091 13,852,548 61,747,684 23,742,457 0 0 0 9,561,175 7,361,705 61,747,684 26,441,837 26,496,107 17,366,386 24,578,194 7,211,808 0 464,645 1,453,268 379,000 0 0 0 0 1,04,268 .22 .22
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