-----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, IQtpKrnqLBy6caqGAkZwDYAZtJjypP9DLNIPKgLvsr2w2VpRidT0e4JPjAS5q7KV zhINAFjuCaeTN7d6AzwXuQ== 0000950124-97-002968.txt : 19970520 0000950124-97-002968.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950124-97-002968 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CODE ALARM INC CENTRAL INDEX KEY: 0000821509 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 382334698 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16441 FILM NUMBER: 97607766 BUSINESS ADDRESS: STREET 1: 950 E WHITCOMB CITY: MADISON HEIGHTS STATE: MI ZIP: 48071 BUSINESS PHONE: 8105839620 MAIL ADDRESS: STREET 1: 950 E WHITCOMB CITY: MADISON HEIGHTS STATE: MI ZIP: 48071 10-Q 1 FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to -------- ----------- Commission File Number: 016441 CODE-ALARM, INC. ---------------- (Exact name of registrant as specified in its charter) MICHIGAN -------- (State or other jurisdiction of incorporation or Organization) 38-2334698 ---------- (I.R.S. Employer Identification No.) 950 EAST WHITCOMB, MADISON HEIGHTS, MICHIGAN 48071 ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code): 810-583-9620 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of the registrant's common stock, without par value, as of May 14, 1997 is 2,320,861. 2 INDEX
Page No. -------- Part I. - Financial Information 3 Consolidated Condensed Balance Sheets - As of March 31, 1997 (Unaudited) and December 31, 1996 3 Consolidated Condensed Statements of Operations (Unaudited) - First Quarter Ended March 31, 1997 and March 31, 1996 4 Consolidated Condensed Statements of Cash Flows (Unaudited) - First Quarter Ended March 31, 1997 and March 31, 1996 5 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Financial 7 Condition and Results of Operations Part II. - Other Information 9
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. CODE-ALARM, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
March 31, December 31, 1997 1996 ASSETS (Unaudited) - ------ ------------ ------------ Cash and cash equivalents $ 165 $ 45 Accounts receivable (less allowance for doubtful accounts of $992,000 in 1997 $950,000 in 1996) 9,104 8,798 Inventories 8,496 8,734 Refundable income taxes 1,059 1,059 Deferred income taxes 2,040 2,040 Other 519 729 -------- --------- Total current assets 21,383 21,405 Property and equipment, net of accumulated depreciation 3,545 3,750 Excess of cost over net assets acquired, net 1,508 1,910 Other intangibles, net 500 651 Other assets 1,561 1,711 -------- --------- Total assets $ 28,497 $ 29,427 ======== ========= LIABILITIES & SHAREHOLDERS' EQUITY - ---------------------------------- Current portion of long-term debt $ 8,786 $ 9,308 Accounts payable 9,035 9,874 Accrued expenses 2,692 2,358 Income tax payable 13 22 Reserve for litigation 5,943 5,934 -------- -------- Total current liabilities 26,469 27,496 Long-term debt 781 879 -------- -------- Total liabilities 27,250 28,375 Shareholders' equity: Common stock 12,213 12,213 Foreign currency translation adjustment (178) (260) (Accumulated deficit) (10,788) (10,901) -------- -------- Total shareholders' equity 1,247 1,052 -------- -------- Total liabilities and shareholders' equity $ 28,497 $ 29,427 ======== ========
See accompanying notes to consolidated condensed financial statements. 3 4 CODE-ALARM, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
First Quarter Ended March 31 1997 1996 -------- -------- Net sales $ 15,775 $ 16,596 Cost of sales 9,743 10,674 -------- -------- Gross profit 6,032 5,922 Operating expenses: Sales and marketing 2,244 2,598 Engineering 426 762 General and administrative 2,532 2,037 Impairment of goodwill 373 -------- -------- 5,575 5,397 -------- -------- Income from operations 457 525 Other expense: Interest 336 418 Other 8 2 -------- -------- Income before income taxes 113 105 Income taxes 56 -------- -------- Net income $ 113 $ 49 ======== ======== Net income per common share $ 0. 05 $ 0.02 ======== ======== Weighted average number of common shares outstanding 2,321 2,320 ======== ========
See accompanying notes to consolidated condensed financial statements. 4 5 CODE-ALARM, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
First Quarter Ended March 31 1997 1996 ---- ---- Cash flows from operating activities $ 845 $ (440) Cash flows from investing activities: Capital expenditures (105) (87) Payment for intangible assets (33) Cash flows from financing activities: Net repayments of long-term debt (440) (521) Net (repayment) borrowings on credit facility (180) 676 ------ ------ Net change in cash and cash equivalents 120 (405) Cash and cash equivalents, beginning of period 45 416 ------ ------ Cash and cash equivalents, end of period $ 165 $ 11 ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the quarter for: Interest $ 76 $ 121 ====== ====== Income taxes $ 25 $ 0 ====== ======
See accompanying notes to consolidated condensed financial statements. 5 6 CODE-ALARM, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1) The consolidated condensed interim financial statements reflect all adjustments which in the opinion of management are necessary to fairly state results for the interim periods presented. All adjustments are of a normal and recurring nature, except for the impairment of goodwill in the first quarter of 1997. Results of operations for the interim periods presented are not necessarily indicative of results to be expected for the fiscal year. 2) The financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. 3) Inventories consist of the following:
March 31, December 31, 1997 1996 (Unaudited) ----------- ------------ Raw materials $ 5,925 $ 5,811 Work in process 327 324 Finished goods 2,244 2,599 --------- ------- $ 8,496 $ 8,734 ========= =======
4) On April 30, 1997 the Company's French subsidiary, European Automotive Equipment, filed a voluntary reorganization proceeding and is continuing its operations as debtor in possession under the supervision of the Commercial Court of Bobigny, France. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations The Company's consolidated net sales decreased $821,000, or 4.9%, to $15.8 million for the quarter ended March 31, 1997, as compared to $16.6 million for the quarter ended March 31, 1996. The decline was due to the Company's subsidiary operation in France, as the weakness in this market continued. North American sales were up slightly during the current quarter to $13.3 million, as original equipment manufacturers ("OEM") sales increased 6.7% and direct sales to international dealers increased almost 12%. Domestic retail aftermarket and automotive expediter sales were down. For the quarter ended March 31, 1997, consolidated gross profit percent increased to 38.2% as compared to 35.7% for the comparable quarter ended March 31, 1996, as North American margins continued to improve due to cost reductions and productivity improvements. Consolidated operating expenses for the quarter ended March 31, 1997, increased $178,000, or 3.3%, to $5.6 million as compared to $5.4 million for the quarter ended March 31, 1996. The increase in consolidated operating expenses was due primarily to the writedown of intangible assets and adjustments to the carrying value of other assets in Europe totaling $458,000. The Company continues to incur significant legal and other professional fees in asserting its patent rights and as defendant in patent infringement suits. As a result of the foregoing, the Company's consolidated income from continuing operations for the quarter ended March 31, 1997, was $457,000, a decrease from last year's first quarter results of $525,000. This decrease was due to increased losses in Europe of $441,000, and totaled $1,000,000 for the current quarter. However, North American operating income increased to $1.5 million. Interest expense was down 20% in the first quarter of 1997 from the first quarter of 1996, to $336,000, as the Company continues to apply excess cash flow from operating activities to reduce bank borrowings and other long- term debt. The current quarter's tax expense provided for operations was offset by deferred tax benefits generated through prior year net operating losses. As a result of the foregoing, the Company recorded net income for the quarter ended March 31, 1997, of $113,000, or $.05 per share, compared to net income of $49,000, or $.02 per share, for the quarter ended March 31, 1996. On April 30, 1997, the Company's French subsidiary, European Automotive Equipment, filed a voluntary reorganization proceeding and is continuing its operations as debtor in possession under the supervision of the Commercial Court of Bobigny, France Liquidity and Capital Resources The Company's consolidated working capital at March 31, 1997, was a deficit of ($5.1) million as compared to a deficit of ($6.1) million at December 31, 1996. The current ratio (current assets divided by current liabilities) as of March 31, 1997, is .81 to 1, compared to .78 to 1 at December 31, 1996. Net cash provided by operating activities for the quarter ended March 31, 1997, was $845,000 which was used to finance capital expenditures of $105,000 and repayment of bank borrowings and other long-term debt of $620,000. At December 31, 1996, the Company was not in compliance with certain of its bank credit facility covenants. The Company is continuing its discussion with the Bank concerning these loan covenant violations, which continue to exist and which have not been cured. As of May 12, 1997, the Bank had not agreed to amend the loan agreement in a manner which would place the Company in compliance with all covenants of the agreement currently and as of March 31, 1997. As a result, all outstanding borrowings due the Bank at March 31, 1997, have been classified as a current liability. If the Company is not successful in its efforts to secure an amended credit agreement, or if the Company is unable to obtain alternative financing, the Company's ability to continue operations at its planned level may be impaired. 7 8 As of May 8, 1997, $11.0 million of the $14.25 million revolving credit facility was borrowed and outstanding. 8 9 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Code-Alarm, Inc. v. Electromotive Technology Corporation. Case No. 87-CV-74022-DT. In November of 1987, the Company filed a declaratory judgment action against Electromotive Technology Corporation ("ETC") in the United States District Court for the Eastern District of Michigan, Southern Division seeking a declaration that ETC's U.S. Patent No. 4,585,569 (the "'569 Patent"), describing and claiming a shock or motion sensor system, was invalid or not infringed by the Company. Subsequently, Directed Electronics ("Directed"), of Vista, California, acquired an interest in the '569 Patent and was made a party to the lawsuit. A judgment was entered against the Company on June 16, 1995 in the Court of Appeals for the Federal Circuit and the Company posted a letter of credit as security for an appeal bond in the amount of approximately $5.9 million, representing the amount of the judgment, including interest. On April 8, 1997 the Court granted the Company's motion to pay the bond proceeds and accrued interest to Plaintiffs, in full satisfaction of the judgment, without prejudice to the Company's right to proceed to set aside the judgment on appeal. The judgment was satisfied on April 18, 1997. In the same proceeding Directed is asserting patent infringement claims against two subsequent shock sensor designs. The Court has tentatively held that these two subsequent designs infringe the ETC patent. The Court has preliminarily enjoined the manufacture, use, sale, offering for sale and importing of these two subsequent designs and has scheduled a trial for June 30, 1997 on the issues of willfulness and damages. Aureo Rivera Davila and Aureo E. Rivera v. Magna Holding Company et al., Case No. 97C 1909, filed March 20, 1997 in the U.S. District Court, Northern District of Illinois, Eastern Division. Plaintiffs seek enforcement against the Company of a $19.4 million default judgment entered by the Court on July 26, 1990 against Chapman Industries Corp. ("Industries") for alleged patent infringement. With accumulated interest, the amount of the default judgment is now approximately $30 million. A subsidiary of the Company purchased certain assets from LaSalle National Bank ("LaSalle") on January 19, 1990 in a private sale conducted by LaSalle under Section 9-504 of the Illinois Uniform Commercial Code to dispose of collateral securing a defaulted loan made by LaSalle to Chapman Products, Inc. ("Products"). Plaintiffs allege that the assets were acquired by Products from Industries. Plaintiffs claim that the sale of the assets to the subsidiary of the Company was a fraudulent conveyance and that the Company is a successor in interest to the liability of Industries for the default judgment. The Company has tendered the defense of this action to LaSalle pursuant to the indemnification terms contained in its purchase agreement with LaSalle. Although LaSalle has not yet responded to the Company's tender of the defense, LaSalle assumed the Company's defense in a similar action by plaintiffs to enforce the default judgment against the Company in Puerto Rico. The Puerto Rican action was dismissed on March 20, 1996. ITEM 5. OTHER INFORMATION The Company's common stock was removed from The Nasdaq Stock Market effective the opening of business on Thursday, April 24, 1997, as a result of the Company's deficiency in meeting the minimum net tangible assets requirement for continued inclusion on The Nasdaq Stock Market. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The documents filed as a part of this report: (3.1) Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-18, as amended, Registration No. 33-16991C ("Form S-18"). (3.2) Bylaws of the Company, as amended, incorporated by reference to Exhibit 3.2 to the Company's Form 10-K for the year ended December 31, 1990 ("1990 Form 10-K"). (11) Shares issuable under employee stock options were excluded from the computation of weighted average number of shares outstanding since such shares were either anti-dilutive or their dilutive effect was not material. (27) Financial Data Schedules. (b) There were no reports on Form 8-K filed during the quarter ended March 31, 1997. 9 10 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. CODE-ALARM, INC ------------------------------ (Registrant) Date: May 14, 1997 /S/ Rand W. Mueller ------------ ------------------------------ Rand W. Mueller President Date: May 14, 1997 /S/ Craig S. Camalo ------------ ------------------------------ Craig S. Camalo Vice President of Finance (Chief Financial Officer) (Principal Accounting Officer) 10 11 EXHIBIT INDEX Exhibit Number Description Page - ------- ----------- ---- [S] [C] [C] 3.1 Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-18, as amended, Registration No. 33-16991C ("Form S-18"). 3.2 Bylaws of the Company, as amended, incorporated by reference to Exhibit 3.2 to the Company's Form 10-K for the year ended December 31, 1990 ("1990 Form 10-K"). 27 * Financial Data Schedule * attached as an Exhibit hereto. SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ 27 -- Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 MAR-31-1997 165 0 10,096 992 8,496 21,383 11,597 8,052 28,497 26,469 781 0 0 12,213 (10,966) 28,497 15,775 15,775 9,743 9,743 5,575 42 336 113 0 113 0 0 0 113 $0.05 $0.05
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