<PAGE>
THIS DOCUMENT IS A COPY OF THE FORM 10-1 FILED ON NOVEMBER 15, 1995, PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
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 September 30, 1995
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 November 10, 1995, there were outstanding 2,805,894 shares of the
registrant's common stock, par value $.05 per share.
/PAGE
<PAGE>
<PAGE> PART I FINANCIAL INFORMATION
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS Sept. 30, 1995March 31, 1995
Current Assets: ----------------------------
Cash & cash equivalents $ 861,647 $ 4,580,751
Short-term investments, at cost, which
approximates market value 1,977,044 2,437,842
Accounts receivable, less allowance
for doubtful accounts of $100,000 6,089,017 4,916,052
Inventories 7,500,586 5,255,724
Income tax receivable 505,254 94,121
Deferred income tax charges 416,400 354,500
Prepaid expenses and other assets 896,558 314,285
----------- -----------
Total Current Assets 18,246,506 17,953,275
Fixed assets at cost 14,263,615 12,655,276
Less accumulated depreciation 9,353,247 8,734,705
---------- -----------
4,910,368 3,920,571
Property under capital lease 4,740,110 4,760,810
Less accumulated depreciation 2,152,315 2,035,297
---------- -----------
2,587,795 2,725,513
Other assets 140,052 145,934
----------- -----------
Total Assets $25,884,721 $24,745,293
LIABILITIES
Current Liabilities
Current portion of long-term debt $ 392,835 $ 434,934
Accounts payable 2,121,568 1,213,958
Short term borrowings 500,000 0
Accrued payroll & benefits 633,683 1,074,103
Other accrued liabilities 293,366 266,526
----------- -----------
Total Current Liabilities 3,941,452 2,9,89,521
Obligations under capital leases 560,859 745,733
Deferred compensation 1,696,144 1,527,638
Deferred income tax 288,200 288,200
Shareholders' Equity
Common stock, par value $.05 per share Authorized
12,000,000 shares, Issued 2,802,489 shares at
9/30/95 and 2,792,489 at 3/31/95 140,137 139,624
Capital in excess of par value 6,927,852 6,853,246
Retained earnings 12,818,479 12,724,265
----------- -----------
19,886,468 19,717,135
Less: Treasury stock, 1,967 shares at 9/30/95
at cost and 7,468 shares at 3/31/95 at cost (10,689)(36,326)
Notes receivable for stock purchases (477,713) (486,608)
19,398,066 19,194,201
----------- -----------
Total Liabilities & Shareholders' Equity $25,884,721$24,745,293
=========== ===========
See accompanying notes to financial information.
</TABLE>
/PAGE
<PAGE>
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Income Statement (Unaudited)
<TABLE>
<S> <C> <C>
For the Three Months Ended: Sept. 30, 1995 Sept. 30, 1994
(Current Yr.) (Preceding Yr.)
------------- --------------
Gross sales less discounts, returns
and allowances $ 9,299,261 $ 8,671,969
Other income 64,000 95,365
---------- ----------
Total income 9,363,261 8,767,334
Costs and expenses:
Production 5,919,231 5,309,563
Development 1,007,809 971,205
Marketing, administrative & general 2,340,390 1,716,488
Interest expenses 49,999 51,192
---------- ----------
Total costs and expenses 9,317,429 8,048,448
Income before taxes 45,832 718,886
Provision for taxes (115,000) (259,000)
---------- ----------
Net (loss) income (69,168) 459,886
Retained earnings at beginning of period 12,887,647 11,667,775
Dividends none none
Retained earnings at end of period $12,818,479 $12,127,661
Net (Loss) Income Per Share ($0.02) $0.16
===== =====
(See accompanying notes to financial information)
</TABLE>
</PAGE>
<PAGE>
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Income Statement (Unaudited)
<TABLE>
<S> <C> <C>
For the Six Months Ended: Sept. 30, 1995 Sept. 30, 1994
(Current Yr.) (Preceding Yr.)
------------- --------------
Gross sales less discounts,
returns and allowances $18,090,725 $16,844,749
Other income 166,507 177,295
---------- ----------
Total income 18,257,232 17,022,044
Costs and expenses:
Production 11,142,693 10,290,058
Development 1,997,142 1,951,789
Marketing, administrative & general 4,499,645 3,240,151
Interest expenses 97,491 90,161
---------- ----------
Total costs and expenses 17,736,971 15,572,159
Income before taxes 520,261 1,449,885
Provision for taxes (426,000) (532,000)
---------- ----------
Net income 94,261 917,885
Retained earnings at beginning of period 12,724,218 11,209,776
Dividends none none
Retained earnings at end of period $12,818,479 $12,127,661
========== ==========
Net Income Per Share $0.04 $0.32
==== ====
(See accompanying notes to financial information)
</TABLE>
/PAGE
<PAGE>
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<S> <C> <C>
For the Six Months Ended September 30, 1995 1994
---- ----
Cash Flows from Operating Activities:
Net Income $94,214 $ 917,885
------ -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 762,142 708,108
Fixed asset retirements 2,682 2,625
Change in obsolescence reserve 0 50,000
Deferred compensation 168,506 48,744
Change in assets and liabilities:
Accounts receivable (1,172,965) (575,615)
Inventories (2,244,862) 671,576
Income tax receivable (411,133) 139,468
Prepaid expenses and other assets (582,273) (194,735)
Accounts payable 907,610 304,358
Accrued payroll and benefits (440,420) 11,967
Other accrued liabilities 26,840 70,024
Income taxes payable 0 232,308
Deferred income taxes (61,900) 0
---------- ----------
Total adjustments (3,045,773) 1,468,828
---------- ----------
Net cash (used)provided in operating
activities (2,951,559) 2,386,713
Cash flows from investing activities:
Capital expenditures (1,611,021) (593,193)
Short-term investments 460,798 (2,000,000)
---------- ----------
Net cash (used) in investing activities(1,150,223) (2,593,193)
Cash flows from financing activities:
Proceeds from short term borrowings 500,000 0
Principal payments on long-term debt and
capital lease obligations (226,973) (283,295)
Common stock transactions, net 109,651 68,924
---------- ----------
Net cash provided (used) by financing activities 382,678 (214,371)
Net (decrease) in cash and cash equivalents (3,719,104)(420,851)
Cash and cash equivalents at beginning of period 4,580,751 3,907,111
---------- ----------
Cash and cash equivalents at end of period $861,647 $3,486,260
======== ==========
Cash paid during the period for:
Interest 32,078 26,719
Income taxes 882,807 18,377
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.
</TABLE>
</PAGE>
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SIX-MONTH PERIOD ENDED
September 30, 1995
(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
<TABLE>
<S> <C> <C>
Major classifications of inventory follow:
Sept, 30 1995March 31, 1995
---------------------------
Component Parts 2,904,384 2,100,894
Work In Process 1,390,820 475,927
Finished Products 3,205,382 2,678,903
--------- ---------
7,500,586 5,255,724
========= =========
</TABLE>
/PAGE
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three and six month periods ended September 30, 1995
increased $627,000 and $1,246,000, respectively as compared to the sales for
the comparable periods ended September 30, 1994. These increases were
primarily attributable to increased sales in most product categories and
increased sales to domestic and international wholesale distribution
accounts.
The Company sells a variety of electronic security and fire equipment
that has a significant range in both sales price and gross product margin.
Based on customer demand, sales of different product types have historically
shown noticeable shifts on a quarter to quarter basis. It is projected that
average prices will continue to decline in fiscal 1996. The Company is
adding reduced featured versions of its standard product line to accommodate
this trend.
Gross profit margins on sales for the quarter ended September 30, 1995
fell by approximately two percentage points as compared with the same
quarter a year ago. This decline is attributable to special startup pricing
for the Company's international sales offices as well as increased domestic
labor costs associated with the build up of inventory levels to support the
increase in international sales. Gross profit margins remained consistent
during the six month period ended September 30, 1995 versus the same period
one year ago.
Internationally, the Company now has sales offices in Australia,
China, France and Hong Kong. The Company has obtained several product
approvals from the appropriate agencies within these and other targeted
countries. This process is similar to that provided by UL and the FCC in
the United States. The Company's southeast Asia manufacturing facility
equipment and management are in place. Procedures are being developed and
training is underway. Manufacturing operations at this facility are
targeted to commence later this year.
Other income decreased for the three and six month periods ended
September 30, 1995 as compared with the same periods ended September 30,
1994 due to decreases in funds available for investment.
Production expenses for the three months ended September 30, 1995
increased 11.5% as compared with the same three month period a year ago.
This increase is attributable to the Southeast Asia manufacturing facility
startup. Production expenses for the six months ended September 30, 1995
increased at a rate consistent with sales activity as compared with the
same period one year ago.
Development expenses for the three and six months periods ended
September 30, 1995 remained consistent with that of the same periods ended
September 30, 1994.
Marketing, administrative and general expenses increased $624,000 and
$1,259,000 in the three and six month periods ended September 30, 1995 as
compared with the same periods a year ago. These increases were primarily
due to the startup of the Company s international venture.
Interest expenses remained constant for the three and six month
periods ended September 30, 1995 versus the same periods a year ago.
Pretax income was $46,000 and $520,000 for the three and six month
periods ended September 30, 1995, respectively as compared with $719,000 and
$1,450,000 for the same periods a year ago. The decrease was primarily due
to the full expensing of the international startup costs.
The Company s effective tax rates for the three and six months periods
ended September 30, 1995 were 250.9% and 81.9% as compared with 36.0% and
36.7% for the three and six months ended September 30, 1994. These
significant increases were due to the inability of the Company to write off
certain subsidiary losses at this time. The Company will benefit from these
losses on a carry forward basis when the subsidiaries becomes profitable.
FINANCIAL CONDITION
At September 30, 1995, the Company had net working capital of $14.3
million, including approximately $2.8 million in cash, cash equivalents and
short-term investments. This compares to net working capital of
approximately $15.0 million and $7.0 million in cash, cash equivalents and
short-term investments at March 31, 1995. Operations for the six-month
period ended September 30, 1995 used net cash of $2,952,000. The cash
outflow was primarily due to startup costs associated with the Company s
international initiative.
The Company has bank commitments for revolving credit facilities
totaling $9,000,000, that extend into fiscal 1998. These commitments include
an interest rate based on either the bank's stated prime rate or the London
Interbank Offered Rates (LIBOR) and a five year term loan provision for
repayment of balance due, if necessary. At September 30, 1995, the Company
had short-term loans of $500,000 from these lines of credit. The Company
believes that current levels of cash, cash equivalents and short-term
investments, together with available lines of credit, will be sufficient to
meet its foreseeable working capital needs. On a long-term basis, most cash
requirements of the international initiative are expected to be derived from
operations of overseas subsidiaries.
The Company continually reviews its capital assets and upgrades them
as required to insure that its technical and manufacturing capabilities stay
on the leading edge of the industries it serves. During the quarter ended
September 30, 1995, the Company purchased manufacturing equipment for its
Southeast Asia manufacturing facility and committed to the purchase of
business system software to enhance its ability to communicate in a global
market place. The Company believes it has the resources to fund these
expenditures internally.
Although the Company has a broad customer base, it does have several
customers who individually account for large amounts of business. A
significant change in purchases by one of these customers could result in
significant fluctuations in sales and profit. To minimize these
fluctuations, the Company has increased its emphasis on partnership
opportunities with its national and regional accounts. In addition, the
Company has increased its support of domestic and international wholesale
distribution companies. The Company s international initiative is also
expected to minimize fluctuations in sales.
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, alarm control products and several
wireless projects, as well as the expansion of the Company s international
marketing efforts.
The Company, in conjunction with its Emergency Communications
subsidiary, has initiated a nationwide promotional campaign of its Security
Escort personal safety system to engineered systems dealers. This is the
first time the system has been offered to markets other than colleges and
universities. Potential opportunities for the system exist in areas such as
health care facilities, shopping malls, high rise residential facilities and
corporate campuses. Additional interest has also been expressed in certain
government applications.
Accounts receivable increased $1,173,000 from the March 31, 1995
level. This increase was partially attributable to the increased sales
during the quarter ended September 30, 1995 to the Company s distributors
and national accounts. It was also impacted by special promotional startup
terms offered to the Company's international sales offices. The Company s
standard credit terms are net 30 days.
Inventories increased $2,245,000 from the March 31,1995 level due to
the build-up of inventory to support the Company's international venture.
The Company regularly reviews its reserve for obsolescence and adjusts it
accordingly. Occasionally, a new product will render another obsolete.
However, it has been the Company s policy to time the release of new
products to minimize this impact.
Prepaid expenses and other assets increased $582,000 from the March
31, 1995 due to the payment of several deposits associated with the
Southeast Asia manufacturing facility as well as the payment of school taxes
and prepaid health care insurance premiums.
Accounts payable increased $908,000 from the March 31, 1995 level due
to timing of payments on inventory purchases to finance our international
venture.
Accrued payroll and benefits decreased $440,000 from March 31, 1995,
primarily due to the payment of fiscal 1995 year-end performance bonuses.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
- --------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
At the Annual Meeting of Shareholders held on Thursday, August 3,
1995, there were 2,804,238 shares of Common Stock outstanding and entitled
to vote and a total of 2,492,787 shares were present in person or by
proxy at the Meeting. The following individuals were elected to the Board
of Directors:
Nominated Director FOR WITHHELD
------------------ --------- --------
Donald R Adair 2,416,103 3,588
Mortimer B Fuller III 2,418,193 1,498
Karl H Kostusiak 2,417,528 2,163
David B Lederer 2,417,984 1,707
Edward C McIrvine 2,418,659 1,032
The following proposals were also approved:
Affirmative Negative Votes
Votes Votes Withheld
----------- -------- -----
1. Ratify the appointment of
Price Waterhouse as independent
auditors for the fiscal year
ending March 31, 1996. 2,467,167 17,412 8,209
2. Amendment of the Company's 1992
Stock Option Plan effective
January 24, 1995, as described
in the Company's proxy statement
dated June 22, 1995. 2,181,590 128,036 124,992
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 September 30, 1995.
<PAGE>
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: November 14, 1995 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)
<PAGE>
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 dated May 24, 1994 are incorporated by
reference to Exhibit 10 starting on page 134 to the registrant's
Report on Form 10-K dated June 27, 1994.
(11) Statement regarding computation of per share earnings. See Exhibit
11.
(27) Financial data schedule. Included as Exhibit 27 to electronic Edgar
filing only.<PAGE>
<PAGE>
Exhibit 11
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Computation of Net Income Per Common
And Common Equivalent Share
<TABLE>
<S> <C> <C>
Three Months Ended September 30, 1995 1994
--------- ---------
Net Income ($ 69,168) $ 459,886
ADD - Interest on deferred compensation 15,061 13,414
--------- --------
Adjusted net income applicable to common stock ($ 54,107) $ 473,300
Number of Shares:
Weighted average number of shares 2,791,987 2,753,897
Common Stock equivalent due to assumed
exercise of stock options and warrants 0 226,596
--------- --------
2,791,987 2,980,493
========= =========
Net Income per Common and Common
Equivalent share ($0.02) $0.16
Six Months Ended September 30, 1995 1994
--------- ---------
Net Income $ 94,261 $ 917,885
ADD - Interest on deferred compensation35,142 24,899
-------- ---------
Adjusted net income applicable to common stock $129,403 $ 942,784
Number of Shares:
Weighted average number of shares 2,789,354 2,722,330
Common Stock equivalent due to assumed
exercise of stock options and warrants 238,564 227,297
--------- ---------
3,027,918 2,949,627
Net Income per Common and Common
Equivalent share $0.04 $0.32
==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 861,647
<SECURITIES> 1,977,044
<RECEIVABLES> 6,189,017
<ALLOWANCES> (100,000)
<INVENTORY> 7,500,586
<CURRENT-ASSETS> 18,246,506
<PP&E> 19,003,725
<DEPRECIATION> 11,505,562
<TOTAL-ASSETS> 25,884,721
<CURRENT-LIABILITIES> 3,941,452
<BONDS> 0
<COMMON> 7,067,989
0
0
<OTHER-SE> 12,818,479
<TOTAL-LIABILITY-AND-EQUITY> 25,884,721
<SALES> 9,299,261
<TOTAL-REVENUES> 9,363,261
<CGS> 5,919,231
<TOTAL-COSTS> 9,267,430
<OTHER-EXPENSES> 3,348,199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,999
<INCOME-PRETAX> 45,832
<INCOME-TAX> 115,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (69,168)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
