UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 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: 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 12, 1997 there were outstanding 6,098,514 shares of the
registrant's common stock, par value $.05 per share.
<PAGE>
PART I FINANCIAL INFORMATION
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
Sept. 30, 1997 Mar. 31, 1997
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 5,436,013 $ 2,244,265
Accounts receivable, less allowance
for doubtful accounts of $325,400
and $313,800, respectively 23,036,151 15,246,309
Inventories 32,384,557 29,995,215
Deferred income tax charges 2,199,638 2,132,156
Prepaid expenses and other assets 1,784,363 883,137
---------- ----------
64,840,722 50,501,082
---------- ----------
Fixed assets 11,656,505 11,248,171
Deferred income taxes 3,046,200 3,046,200
Goodwill and other intangibles 4,949,281 2,942,626
Other assets 957,357 537,772
---------- ----------
Total Assets $85,450,065 $68,275,851
========== ==========
Liabilities & Shareholders' Equity
Current liabilities:
Current portion of long term debt $ 2,486,868 $ 953,648
Current portion of capital lease obligation
52,188 147,574
Short term borrowings 715,277 0
Accounts payable 13,813,365 12,259,380
Accrued payroll and benefits 2,948,001 2,818,487
Other accrued liabilities 2,316,308 3,254,593
---------- ----------
22,332,007 19,433,682
Obligations under capital leases 25,750 54,125
Other long term liabilities 3,206,947 2,924,975
Long term debt 15,365,890 28,031,802
Shareholders' equity:
Common stock, par value $.05 per
share; Authorized - 12,000,000
shares; Issued - 6,098,927 shares
at September 30, 1997, and 4,478,993
shares at March 31, 1997 293,296 223,950
Capital in excess of par value 34,641,098 9,448,917
Retained earnings 10,104,935 8,594,306
---------- ----------
45,039,329 18,267,173
Less - Treasury stock, at cost (49,672) (52,553)
Notes receivable for stock purchases (320,780) (378,373)
Cumulative translation adjustment (149,406) (4,980)
---------- ----------
44,519,471 17,831,267
---------- ----------
Total liabilities and shareholders' equity $85,450,065 $68,275,851
========== ==========
(See accompanying notes to financial statements)
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations and Retained Earnings
(Unaudited)
Sept. 30, 1997 Sept. 30, 1996
For the Three Months Ended: (Current Year) (Preceding Year)
---------- -----------
Net sales $34,463,093 $24,865,642
Costs and expenses:
Production 23,535,399 16,577,368
Research and development 2,202,994 1,997,484
Marketing, administrative and general 7,418,684 4,778,247
---------- ----------
Total costs and expenses 33,157,077 23,353,099
Operating income 1,306,016 1,512,543
Interest income 2,376 8,784
Interest expense (816,831) (512,838)
Other income 23,050 23,643
---------- ----------
Income before taxes $ 514,611 $ 1,032,132
Provision for taxes 149,200 238,000
---------- ----------
Net income 365,411 794,132
========== ==========
Retained earnings at beginning of
period 9,739,524 5,493,305
Retained earnings at end of period $10,104,935 $ 6,287,437
========== ==========
Earnings per share
Basic $0.08 $0.19
Diluted $0.07 $0.17
==== ====
(See accompanying notes to financial information)
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations and Retained Earnings
(Unaudited)
For the Six Months Ended: Sept. 30, 1997 Sept. 30, 1996
(Current Year) (Preceding
Year)
------------ -------------
Net Sales $62,670,881 $48,043,965
Costs and expenses:
Production 41,091,331 31,943,190
Research and development 4,287,952 3,757,415
Marketing, admin. and general 13,805,241 9,469,901
---------- ----------
Total costs and expenses 59,184,524 45,170,506
Operating income 3,486,357 2,873,459
Interest income 6,030 28,126
Interest expense (1,454,300) (867,813)
Other income 238,758 23,643
---------- ----------
Income before taxes 2,276,845 2,057,415
Provision for taxes 778,200 639,000
---------- ----------
Net income $1,498,645 $ 1,418,415
---------- ----------
Retained earnings at beginning of
period 8,594,306 4,869,022
Amortization of redeemable common
stock 11,984
Retained earnings at end of period $10,104,935 $ 6,287,437
========== =========
Earnings per share
Basic $0.32 $0.33
Diluted $0.28 $0.30
==== ====
(See accompanying notes to financial information)
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months Ended September 30, 1997 1996
Cash Flows from Operating Activities: ---- ----
Net income $1,498,645 $1,418,415
--------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,270,984 1,361,051
Gain on sale of land (205,000)
Stock based compensation 85,975 (107,000)
Deferred compensation 457,415 143,925
Changes in oper. assets and liabilities:
Accounts receivable (1,428,534) (2,721,258)
Inventories 3,772,698 (3,363,358)
Income tax receivable (1,140,989) (251,009)
Prepaid expenses and other assets (1,042,635) (1,086,466)
Accounts payable (2,795,786) 2,827,413
Accrued payroll and benefits (10,569) 753,866
Other accrued liabilities (2,921,989) (56,835)
--------- ---------
Total adjustments (2,958,430) (2,499,671)
--------- ---------
Net cash used in operating activities (1,459,785) (1,081,256)
Cash Flows from Investing Activities:
Proceeds from sale of land 312,000
Capital expenditures (1,319,246) (1,025,943)
Purchase of companies, net of cash
acquired (6,816,052)
--------- ----------
Net cash used in investing activities (7,823,298) (1,025,943)
Cash Flows from Financing Activities:
Proceeds from borrowings 6,718,198 2,573,700
Proceeds from issuance of common stock 24,258,745
Principal payments on long-term debt and
capital lease obligations (18,844,028) (497,544)
Common stock transactions 474,358 410,380
Amortization of redeemable common stock 11,984
--------- ----------
Net cash provided by financing activities 12,619,257 2,486,536
Effect of exchange rate changes (144,426)
--------- ----------
Net increase in cash and cash equivalents 3,191,748 379,337
Cash and cash equiv. at beginning of period 2,244,265 913,716
Cash and cash equivalents at end of period $5,436,013 $1,293,053
========= =========
Cash paid during the year for:
Interest $1,113,000 $484,400
Income taxes $1,576,600 $567,300
(See accompanying notes to financial information)
<PAGE>
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
THREE AND SIX MONTH PERIODS ENDED
September 30, 1997
(Unaudited)
NOTE 1. GENERAL
The accompanying unaudited interim consolidated financial information
has been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (SEC). The unaudited interim
consolidated financial information include the consolidated accounts of
Detection Systems, Inc. and its majority-owned subsidiaries
(collectively, "the Company") with all intercompany transactions
eliminated. In the opinion of management, all adjustments necessary for
a fair statement of the financial position, results of operations and
cash flows for the interim periods presented have been made. Certain
footnote disclosures normally included in financial information prepared
in accordance with generally accepted accounting principles (GAAP) have
been condensed or omitted pursuant to such SEC rules and regulations.
The financial information should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended March 31, 1997.
CASH FLOW STATEMENT - During the first quarter of fiscal 1998, the
Company issued 221,738 and 34,121 shares of common stock in connection
with the acquisitions of DA Systems and Seriee S.A., respectively. The
Company repurchased the 221,738 shares issued in connection with the
acquisition of DA Systems during the second quarter of fiscal 1998 (see
note 3).
EARNINGS PER SHARE - The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Sharem" during the
quarter ended December 31, 1997. As required by this Statement,
earnings per share of prior periods are presented in accordance with the
provisions of SFAS No. 128. There are no significant reconciling items
between net income as presented in the consolidated statement of
operations and net income available to common stockholders used in the
calculation of earnings per share. Reconciling items between the number
of shares used in the calculation of basic and diluted earnings per
share relate only to deferred compensation plans, options and warrants,
as follows:
Three months ending Six months ending
Sep. 30, Sep. 30,
1997 1996 1997 1996
Weighted average number of
shares outstanding 4,831,166 4,271,790 4,723,909 4,255,155
Shares associated with
deferred compensation,
option and warrant plans 604,520 366,372 581,804 412,624
NOTE 2. INVENTORIES
Major classifications of inventory follow:
Sept. 30, 1997 March 31, 1997
------------- --------------
Component Parts $15,364,767 $19,457,368
Work In Process 948,519 2,697,459
Finished Products 16,071,271 7,840,388
---------- ----------
$32,384,557 $29,995,215
========== ==========
NOTE 3. ACQUISITIONS
In May 1997, the Company acquired all of the outstanding stock of DA
Systems, in exchange for 221,738 shares of its common stock. The shares
were callable at the Company's option at $17 per share plus interest at
8.25% until June 30, 1998, and could be put to the Company at that price
after that date. The Company exercised its call option to repurchase
these shares in connection with the issuance of common stock in
September 1997. The cost of this acquisition was approximately $4.0
million. DA Systems is a leading British manufacturer of security
control equipment with annual net sales of approximately $10.8 million.
In June 1997, the Company acquired 99.5% of the outstanding stock of
Seriee S.A. of France, in exchange for 34,121 shares of its common
stock, valued at approximately $0.6 million. Seriee is a leading
manufacturer of electronic control and communication equipment with
annual net sales of approximately $6.3 million.
In June 1997, the Company acquired 98.7% of the outstanding stock of
Radio-Active Systems N.V.("RAS") of Belgium for approximately $3.6
million in cash. RAS has a security equipment distribution network
throughout Belgium with annual net sales of approximately $10 million.
These transactions have been accounted for as purchases and,
accordingly, the results of DA Systems, Seriee and RAS are included in
the consolidated financial information as of the date of acquisition.
The financial information reflects the preliminary allocation of
purchase price as the purchase price allocation has not been finalized.
Unallocated excess of purchase price over net assets acquired as of
September 30, 1997 is $2.2 million and is included with goodwill and
other intangibles.
Note 4. ISSUANCE OF COMMON STOCK
In September 1997, the Company sold 1,325,000 shares of common stock at
$20 per share in a public offering. The Company had granted the
underwriters a 30-day option to purchase up to 231,750 additional shares
of common stock under the same terms and conditions as the public
offering to cover over-allotments, and this option was exercised in
October 1997. Expenses associated with this offering as of September
30, 1997, of approximately $2.3 million were net against proceeds.
NOTE 5. RESTATEMENT
The Company discovered an incorrect posting in the Ssecond qQuarter of
fiscal 1998 accounts payable of approximately $950,000. This error
occurred in the conversion of its China manufacturing facility's
existing information system to the corporate system. The Company is
restating the financial statements included in its second quarter fiscal
1998 Form 10-Q, which were filed on November 14, 1997, in this Form 10-
Q/A. As a result, restated net income for the second quarter was $0.4
million ($0.08 per basic share and $0.07 per diluted share) compared to
previously reported net income of $1.1 million ($0.22 per basic share
and $0.20 per diluted share).
The second quarter of fiscal 1998 and year to date results of operations
and Management's Discussion and Analysis included in this report reflect
the restated results of operations for the quarter ended September 30,
1997.
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is a leading supplier of equipment to the electronic
protection industry. The Company designs, manufactures and markets
electronic detection, control and communication equipment for security,
fire protection, access control and CCTV applications, offering products
primarily for the commercial and mid- to high-end residential portions
of the market. From its founding in 1968 until 1995, the Company was
primarily a niche provider of intrusion detection devices for the
domestic market. In 1995, the Company adopted a strategy designed to
substantially expand its product offerings, establish an international
sales presence, increase its manufacturing capacity and improve its
manufacturing cost structure. The Company has since made five
acquisitions, opened sales offices in six countries and successfully
established a manufacturing facility in China.
The Company's significant acquisitions during the current fiscal year
were: (i) purchase in May 1997 of DA Systems in the U.K., with annual
net sales of approximately $10.8 million, (ii) purchase in June 1997 of
Seriee in France, with annual net sales of approximately $6.3 million,
and (iii) purchase in June 1997 of RAS in Belgium, with annual net sales
of approximately $10.0 million. Previous significant acquisitions were
Radionics (February 1996) and Senses International, Inc. (July 1996).
These acquisitions have a significant impact on the comparative
financial information for the three and six month periods ending
September 30, 1997 and 1996. The acquisitions were funded by borrowings
under a commercial credit facility and/or issuance of the Company's
common stock.
Since the opening of the China manufacturing facility in late
fiscal 1996 and throughout fiscal 1997, a portion of the Company's
manufacturing was moved from domestic plants to the China facility.
While production of the Company's highest volume products were moved to
China during this period, such products were limited in number relative
to the Company's entire product line. During the first and second
quarters of fiscal 1998, a far greater number of products that continued
to be manufactured at the Company's Radionics subsidiary were moved to
the China facility. Manufacturing efficiencies consistent with previous
product transfers are anticipated, but the short term impact of this
rapid shift in production location resulted in unexpected
inefficiencies, exacerbated by the Company's multiple manufacturing
information systems, which created difficulties in effectively
coordinating overall materials procurement, production and scheduling.
Consequently, production quantities, yields and efficiency of the China
facility declined during this period while production related overhead
expenses, such as freight, remained constant or increased. To help
assure timely customer deliveries, the Company restarted manufacturing
some of its products at its Radionics facility. These factors resulted
in higher average unit costs for much of the product sold by the Company
during the second quarter of fiscal 1998.
Recently, the Company assigned a senior executive, George E.
Behlke, Vice President of Engineering, to manage and improve
manufacturing operations worldwide. In addition, the Company has added
key personnel to both the financial and management information systems
departments. This team is leading the modification of the Company's
inventory and manufacturing information systems, allowing the Company to
improve all aspects of the supply chain process.
Results of Operations
The following table sets forth, for the periods indicated, the
percentages which certain items of income and expense bear to net sales:
Three Months Six Months Fiscal Year
Ended Ended Ended
Sept. 30 Sept. 30 March 31
1997 1996 1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0% %100.0 100.0%
Costs and expenses:
Production 68.3 66.7 65.6 66.5 64.2 66.9
Research and
development 6.4 8.0 6.8 7.8 8.0 11.2
Marketing, admin.
and general 21.5 19.2 22.0 19.7 21.1 25.1
Purchased in-process
research and 22.3
development
---- ---- ---- ---- ---- ----
Operating income (loss) 3.8 6.1 5.5 6.0 6.7 (25.5)
Interest income 0.0 0.0 0.0 0.0 0.2 0.8
Interest expense 2.3 1.9 2.3 1.7 1.7 0.8
Other Income 0.0 0.0 0.4 0.0 0.0 0.0
---- ---- ---- ---- ---- ----
Income (loss) before
income taxes 1.5 4.2 3.6 4.3 5.2 (25.5)
Provision (benefit) for
income taxes 0.4 1.0 1.2 1.3 1.5 (6.7)
---- ---- ---- ---- ---- ----
Net income (loss) 1.1% 3.2% 2.4% 3.0% 3.7% (18.8)%
==== ==== ==== ==== ==== ====
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996.
The Company's net sales increased 38.6% to $34.5 million in the
fiscal 1998 period from $24.9 million in the comparable period in fiscal
1997. The net sales of DA Systems, RAS and Seriee, which were acquired
in the first quarter of fiscal 1997, accounted for $6.8 million of this
increase. The remaining $2.8 million increase represents sales growth
from existing operations.
Gross margins decreased to 31.7% in the fiscal 1998 period from 33.3%
reported in the comparable year ago period. Gross margins were
negatively impacted by the results of the three companies acquired in
the first fiscal quarter of 1998.
Production expenses increased 42.0% to $23.5 million in the fiscal
1998 period from $16.6 million in the comparable period in 1997. As a
percentage of net sales, production expenses increased to 68.3% in the
fiscal 1998 period from 66.7% in the comparable period in fiscal 1997.
The increase in production expenses was primarily due to a corresponding
increase in the Company's net sales. The increase in production
expenses as a percentage of net sales was impacted by inefficiencies in
the Company's management information ("MIS") system and associated
production planning, purchasing and traffic management systems, which
made it difficult for the Company to control worldwide part, inventory
and freight given increasing demand for its products. To correct this
problem, the Company has implemented an integrated MIS system for all
manufacturing locations. The benefits associated with this change may
not be fully appreciated immediately as there may be a transition period
before the benefits of this change are fully realized. The increase in
production expenses was also impacted by the addition of lower margin
sales from the three recent acquisitions.
Research and development expenses increased 10.3% to $2.2 million in
the fiscal 1998 period from $2.0 million in the comparable period in
fiscal 1997. As a percentage of net sales, research and development
expenses decreased to 6.4% in the fiscal 1998 period from 8.0% in the
comparable period in fiscal 1997. The increase in research and
development expenses was primarily due to the addition of DA Systems and
Seriee research and development expenses. The decrease in research and
development expenses as a percentage of net sales was primarily due to
savings achieved from the continued consolidation of certain research
and development efforts of Radionics and the Company.
Marketing, administrative and general expenses increased 55.3% to
$7.4 million in the fiscal 1998 period from $4.8 million in the
comparable period in fiscal 1997. As a percentage of net sales,
marketing, administrative and general expenses increased to 21.5% in the
fiscal 1998 period from 19.2% in the comparable period in fiscal 1997.
This increase was primarily due to additional marketing related to
acquisitions and international marketing efforts which, in turn,
increased marketing, administrative and general expenses as a percentage
of net sales.
Interest expense increased to $0.8 million in the fiscal 1998 period
from $0.5 million in the comparable period in fiscal 1997. This
increase was primarily due to additional borrowings required to finance
the Company's international expansion and increased inventory levels
necessary during the transition of manufacturing operations to the China
facility.
The Company's effective income tax rate for the fiscal 1998 period
was 29.0% compared to 23.1% for the comparable period in fiscal 1997.
The higher effective rate is due to the source of pretax income among
domestic and international entities.
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1996
The Company's net sales increased 30.4% to $62.7 million in the
fiscal 1998 period from $48.0 million in the comparable period in fiscal
1997. The net sales of DA Systems, RAS and Seriee which were acquired
in the first fiscal quarter of fiscal 1998, accounted for $9.1 million
of this increase. The remaining $5.5 million increase represents sales
growth from existing operations.
Gross margins improved to 34.4% in the fiscal 1998 period from 33.5%
reported in the comparable year ago period. Gross margins were
negatively impacted by the results of the three companies acquired in
the first fiscal quarter of 1998.
Production expenses increased 28.6% to $41.1 million in the fiscal
1998 period from $31.9 million in the comparable period in fiscal 1997.
As a percentage of net sales, production expenses decreased to 65.6% in
the fiscal 1998 period from 66.5% in the comparable period in fiscal
1997. The increase in production expenses was primarily due to a
corresponding increase in the Company's net sales. The decrease in
production expenses as a percentage of net sales was primarily due to
the Company's China facility offset, in part, by manufacturing
inefficiencies previously discussed. The benefits associated with this
change may not be fully appreciated immediately as there may be a
transition period before the benefits of this change are fully realized.
Research and development expenses increased 14.1% to $4.3 million in
the fiscal 1998 period from $3.8 million in the comparable period in
fiscal 1997. As a percentage of net sales, research and development
expenses decreased to 6.8% in the fiscal 1998 period from 7.8% in the
comparable period in fiscal 1997. The increase in research and
development expenses was primarily due to the addition of DA Systems'
and Seriee's research and development expenses. The decrease in
research and development expenses as a percentage of net sales was
primarily due to savings achieved from the continued consolidation of
certain research and development efforts of Radionics and the Company.
Marketing, administrative and general expenses increased 45.8% to
$13.8 million in the fiscal 1998 period from $9.5 million in the
comparable period in fiscal 1997. As a percentage of net sales,
marketing, administrative and general expenses increased to 22.0% in the
fiscal 1998 period from 19.7% in the comparable period in 1996. This
increase was primarily due to additional marketing related to
acquisitions and international marketing efforts which, in turn,
increased marketing, administrative and general expenses as a percentage
of net sales.
Interest expense increased to $1.5 million in the fiscal 1998 period
from $0.9 million in the comparable period in fiscal 1997. This
increase was primarily due to additional borrowings required to finance
the Company's international expansion and increased inventory levels
necessary during the transition of a portion of the Company's
manufacturing operations to the China facility.
The Company's effective income tax rate for the fiscal 1998 period
was 34.2% compared to 31.1% for the comparable period in fiscal 1997.
The higher effective rate reflects a shift in the source of pretax
income between domestic and international entities.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers liquidity to be its ability to meet its long-
and short-term cash requirements. Prior to 1996, those requirements
were primarily met by cash generated from the Company's operating
activities and cash reserves. Since the 1995 implementation of the
Company's strategy designed to enhance its product offerings,
manufacturing capacity and international operations, particularly its
acquisitions and the development of the China facility, the Company has
required external sources of financing to satisfy its liquidity needs.
SIX MONTHS ENDED SEPTEMBER 30, 1997. During the six months ended
September 30, 1997, the Company's operating activities used $1.5 million
of operating cash flow. Net income, depreciation and amortization
provided $3.8 million, a decrease in inventories, excluding the impact
of acquisitions, provided $3.8 million and a decrease in accounts
payable, excluding the impact of acquisitions, used $2.8 million.
Increases in prepaid expenses and other assets, accounts receivable and
income taxes receivable used $1.0 million, $1.4 million and $1.1 million
of operating cash flow, respectively, and other account changes used
$2.8 million of operating cash flow.
During the six months ended September 30, 1997, cash used for
investing activities was $7.8 million and was utilized for the
acquisition of RAS, DA Systems and capital expenditures, primarily for
tooling of fixtures for both new products as well as moving existing
products to lower cost, offshore suppliers.
During the six months ended September 30, 1997, cash flows provided
by financing activities were $12.6 million, primarily representing
proceeds from issuance of common stock.
CAPITAL RESOURCES. On September 30, 1997, the Company had cash
balances of $5.4 million. On that date, the Company had $17.0 million
available under a revolving credit facility. This credit facility bears
interest based on the prime rate or the London Interbank Offered Rate,
plus applicable points based on the Company's degree of financial
leverage, and matures on July 31, 1998.
During September 1997, the Company sold 1,325,000 shares of common
stock at $20 per share. Expenses of approximately $2,333,500 were net
against proceeds. The Company granted the underwriters a 30-day option
to purchase up to 231,750 additional shares of common stock under the
same terms and conditions as the public offering to cover over-
allotments. This option was exercised in October 1997.
The Company expects to continue its pursuit of acquisitions and the
development of new products and markets. The Company has budgeted $3.0
million for capital expenditures during fiscal 1998, excluding any
amounts required for acquisitions. These expenditures will include
continued investment in facilities and equipment necessary to produce
and market its security detection, fire detection, security, fire and
access control products as well as certain new products. The Company
also plans to continue its efforts to market its products
internationally.
The Company believes that the combination of its current cash
balances, cash flows from operations and existing credit facilities will
be sufficient to fund its planned operations during fiscal 1998.
DIVIDEND POLICY. The Company is dedicated to promoting shareholder
value through long term profitability and growth and believes that
continued investments in future product development are essential to
this goal. For this reason, it has been the Company's policy to not pay
cash dividends.
YEAR 2000 ISSUES. The Company does not believe that Year 2000 issues
will significantly affect future financial results.
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis contain certain
"forward-looking statements" within the meaning of Section 27A of the
Securities Act, which represent the Company's expectations or beliefs,
including, but not limited to, statements concerning the Company's
operations, performance, financial condition, growth and acquisition
strategies, margins and growth in sales of the Company's products. For
this purpose, any statements contained therein that are not statements
of historical fact may be deemed to be forward-looking statements.
These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and
actual results may differ materially depending on a variety of important
factors, including those presented under "Risk Factors" included in the
Company's Prospectus dated September 19, 1997.
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: March 3, 1998 /s/ Karl H. Kostusiak
Karl H. Kostusiak, President
/s/ Frank J. Ryan
Frank J. Ryan, Vice President,
Secretary and Treasurer
(Chief Financial Officer)
<PAGE>
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 August 20, 1997,
the following individuals were elected to the Board of Directors:
Nominated Director FOR WITHHELD ABSTAINED
------------------ ---------- ---------- ----------
Donald R Adair 4,158,034 28,181 0
Mortimer B Fuller III 4,162,865 23,350 0
Karl H Kostusiak 4,162,902 23,313 0
David B Lederer 4,162,902 23,313 0
Edward C McIrvine 4,162,452 23,763 0
The following proposals were also approved:
FOR WITHHELD ABSTAINED
--------- -------- ---------
Ratify the appointment
of Price Waterhouse as
independent auditors for
the fiscal year ending
March 31, 1998. 4,163,337 9,218 13,660
FOR WITHHELD ABSTAINED
--------- -------- ---------
Approval of the 1997
Stock Option Plan
effective August 20, 1997. 2,792,663 214,752 1,178,800
Item 5. Other matters
In September 1997, the Company sold 1,325,000 shares of common
stock at $20 per share in a public offering. Expenses associated
with this offering of approximately $2,333,500 were net against
proceeds and reflected as a reduction of capital in excess of par
value. The Company granted the underwriters a 30-day option to
purchase up to 231,750 additional shares of common stock under
the same terms and conditions as the public offering to cover
over-allotments. This option was exercised in October 1997.
Item 6. Exhibits and Reports for Form 8-K.
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
On May 21, 1997, a Form 8-K was filed under Item 5, related to
the Registrant's acquisition of all of the outstanding stock
of DA Systems from Numerex Corp. on May 7, 1997. No financial
reports were included with this report.
<PAGE>
EXHIBIT INDEX
3 (a) Detection Systems, Inc. Certification of Incorporation, as amended,
are incorporated by reference to Exhibit 3(a) to the Company's 1997
Annual Report on Form 10-K.
3 (b) Detection Systems, Inc. By-laws, as amended, are incorporated by
reference to Exhibit 3(b) to the Company's 1997 Annual Report on
Form 10-K.
10 (a) Executive Employment Agreement with Karl H. Kostusiak is
incorporated by reference to Exhibit 10(a) of the Company's
Quarterly Report on Form 10-Q for the quarter ended 6/30/97.
10 (b) Executive Employment Agreements with David B. Lederer are
incorporated by reference to Exhibit 10(b) of the Company's
Quarterly Report on Form 10-Q for the quarter ended 6/30/97.
(11) Statement regarding computation of per share earnings is included as
Exhibit 11 of this Quarterly Report on Form 10-Q.
(27) Financial data schedule is included as Exhibit 27 to the electronic
Edgar filing of this Interim Report on Form 10-Q.
<PAGE>
Exhibit 11
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Computation of Earnings Per Common
And Common Equivalent Share
For the Three Months Ended: September 30, 1997
--------------
Net Income $365,411
Weighted average number of shares 4,831,166
Common Stock equivalent due to assumed exercise of stock
options and warrants and deferred compensation plan
shares 604,520
Earnings per share
Basic $0.08
Diluted $0.07
For the Six Months Ended: September 30, 1997
------------------
Net Income $1,498,645
Plus: amortization of redeemable stock 11,984
---------
Adjusted net income applicable to common stock 1,510,629
=========
Weighted average number of shares 4,723,909
Common Stock equivalent due to assumed exercise of stock
options and warrants and deferred compensation plan
shares 581,804
---------
Earnings per share
Basic $0.32
Diluted $0.28
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