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 December 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: 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 20, 1998 there were outstanding 6,286,495 shares of the
registrant's common stock, par value $.05 per share.
PART I FINANCIAL INFORMATION
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
Dec. 31, 1997 March 31, 1997
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 7,128,288 $ 2,244,265
Accounts receivable, less allowance
for doubtful accounts of $563,400 and 23,428,292 15,246,309
$313,800, respectively
Inventories 33,844,010 29,995,215
Deferred income tax charges 2,173,715 2,132,156
Prepaid expenses and other assets 1,774,764 883,137
---------- ----------
68,349,069 50,501,082
---------- ----------
Fixed assets 11,746,215 11,248,171
Deferred income taxes 3,046,420 3,046,200
Goodwill and other intangibles 4,975,111 2,942,626
Other assets 555,653 537,772
---------- ----------
Total Assets $88,672,468 $68,275,851
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long term debt $ 2,935,971 $ 953,648
Current portion of capital lease
obligation 58,987 147,574
Short term borrowings 684,000 0
Accounts payable 14,299,732 12,259,380
Accrued payroll and benefits 1,315,461 2,818,487
Other accrued liabilities 2,537,267 3,254,593
---------- ----------
21,831,418 19,433,682
Obligations under capital leases 25,000 54,125
Other long term liabilities 3,330,784 2,924,975
Long term debt 14,650,644 28,031,802
Shareholders' equity:
Common stock, par value $.05 per
share; Authorized - 12,000,000
shares; Issued - 6,325,282 shares
at December 31, 1997, and 4,478,993
shares at March 31, 1997 316,221 223,950
Capital in excess of par value 42,601,283 9,448,917
Retained earnings 10,335,738 8,594,306
---------- ----------
53,253,242 18,267,173
Less - Treasury stock, at cost (3,785,647) (52,553)
Notes receivable for stock purchases (325,401) (378,373)
Cumulative translation adjustment (307,572) (4,980)
---------- ----------
48,834,622 17,831,267
---------- ----------
Total liabilities and shareholders' equity $88,672,468 $68,275,851
========== ==========
(See accompanying notes to financial statements)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations and Retained Earnings
(Unaudited)
Dec. 31, 1997 Dec. 31, 1996
For the Three Months Ended: (Current Year) (Preceding Year)
---------- -----------
Net sales $31,346,845 $26,441,837
Costs and expenses:
Production 21,736,505 17,366,386
Research and development 2,266,100 2,046,418
Marketing, administrative and general 7,105,519 5,165,390
---------- ----------
Total costs and expenses 31,108,124 24,578,194
Operating income 238,721 1,863,643
Interest income 91,813 54,270
Interest expense (418,948) (464,645)
Other income (expense) (21,981) 0
---------- ----------
Income before taxes (110,395) 1,453,268
(Benefit) provision for taxes (34,497) 379,000
---------- ----------
Net income $ (75,898) $1,074,268
========== ==========
Retained earnings at beginning of period 10,411,636 6,287,437
---------- ----------
Retained earnings at end of period $10,335,738 $7,361,705
========== ==========
Earnings per share
Basic $(0.01) $0.24
==== ====
Diluted $(0.01) $0.21
==== ====
(See accompanying notes to financial statements)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Income Statement(Unaudited)
For the Nine Months Ended: Dec. 31, 1997 Dec. 31, 1996
(Current Year) (Preceding Year)
------------ -------------
Net Sales $94,017,726 $74,485,802
Costs and expenses:
Production 62,325,836 49,309,576
Research and development 6,554,052 5,803,833
Marketing, administrative and general 20,980,760 14,635,291
---------- ----------
Total costs and expenses 89,860,648 69,748,700
Operating income 4,157,078 4,737,102
Interest income 97,843 82,396
Interest expense (1,873,248) (1,332,458)
Other income 216,777 23,643
---------- ----------
Income before taxes 2,598,450 3,510,683
Provision for taxes 869,002 1,018,000
---------- ----------
Net income $ 1,729,448 $2,492,683
---------- ----------
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 $10,335,738 $7,361,705
========== =========
Earnings per share
Basic $0.34 $0.58
==== ====
Diluted $0.31 $0.52
==== ====
(See accompanying notes to financial information)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months Ended December 31, 1997 1996
Cash Flows from Operating Activities: ---- ----
Net income $1,729,448 $2,492,683
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,951,340 1,901,244
Gain on sale of land (205,000)
Stock based compensation 85,975
Deferred compensation 457,415 (16,669)
Changes in operating assets and liabilities:
Accounts receivable (1,820,675) (4,222,330)
Inventories 2,313,245 (10,177,328)
Income tax receivable (786,684) 97,424
Prepaid expenses and other assets (959,934) (1,155,565)
Accounts payable (2,447,886) 5,100,922
Accrued payroll and benefits (1,643,109) 1,354,410
Other accrued liabilities (2,577,193) (248,677)
--------- ---------
Total adjustments (4,632,506) (7,366,569)
--------- ---------
Net cash used in operating
activities (2,903,058) (4,873,886)
Cash Flows from Investing Activities:
Proceeds from sale of land 312,000
Capital expenditures (1,976,675) (2,317,285)
Purchase of companies, net of cash acquired (6,816,052)
--------- ----------
Net cash used in investing activities (8,480,727) (2,317,285)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from borrowings 6,718,198 5,257,700
Proceeds from issuance of common stock 28,519,669 2,000,005
Principal payments on long-term debt and
capital lease obligations (19,135,399) (527,789)
Common stock transactions 455,948 437,521
Amortization of redeemable common stock 11,984
--------- ----------
Net cash provided by financing activities 16,570,400 7,167,437
--------- ----------
Effect of exchange rate changes on cash balances (302,592)
Net increase in cash and cash
equivalents 4,884,023 (23,734)
Cash and cash equivalents at beginning of period 2,244,265 913,716
Cash and cash equivalents at end of period $7,128,288 $ 889,982
========= ========
Cash paid during the year for:
Interest $1,531,948 $976,200
Income taxes $1,611,600 $585,200
(See accompanying notes to financial information)
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
THREE AND NINE MONTH PERIODS ENDED
December 31, 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 Share," 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. Earnings per share in future periods will be impacted by the
acquisition of EDM in January 1998 (See Note 3). 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 Nine months ending
Dec. 31, Dec. 31,
1997 1996 1997 1996
Weighted average number of
shares outstanding 6,047,782 4,451,985 5,164,808 4,320,765
Shares associated with deferred
compensation, option and
warrant plans -- 582,297 397,576 469,182
NOTE 2. INVENTORIES
Major classifications of inventory follow:
Dec. 31, 1997 Mar. 31, 1997
Component parts $17,488,101 $19,457,368
Work in process 1,778,394 2,697,459
Finished products 14,577,516 7,840,388
---------- ----------
$33,844,010 $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 the largest security equipment distribution network in Belgium
with annual net sales of approximately $10 million.
In January 1998, the Company acquired all of the outstanding stock of
Electronics Design & Manufacturing Pty Limited ("EDM") of Australia in
exchange for 186,667 shares of its common stock and $2.8 million in cash.
EDM is a major Australian manufacturer of security control equipment with
annual net sales of approximately $4.6 million.
These transactions have been accounted for as purchases and, accordingly, the
results of DA Systems, Seriee, RAS and EDM are included, or in the case of
EDM, will be 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 December 31, 1997 is $2.3 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 of approximately $2.7 million were net against
proceeds.
NOTE 5. RESTATEMENT
The Company discovered an incorrect posting in second quarter fiscal quarter
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 restated the financial statements
included in its second quarter fiscal 1998 Form 10-Q in a Form 10-Q/A. In
cconnection with the fiscal 1998 year end close, the Company discovered
offsetting errors relating to the second quarter and errors relating to the
third quarter of fiscal 1998, of approximately $432,000 and ($264,000),
respectively. The Company is restating its second and third quarter Form
10-Q's in Form 10-Q/A's. As a result of this, net income for the second
quarter was $0.7 million ($0.14 per basic share and $0.12 per diluted share)
compared to previously reported net income of $0.4 million ($0.08 per basic
share and $0.07 per diluted share) and net loss for the third quarter was
$0.1 million (a loss of $0.01 per basic and per diluted share)compared to
previously reported net income of $0.1 million ($0.02 per basic and per
diluted share).
The third 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 and nine months ended December
31, 1997.
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 six acquisitions, opened sales offices in six countries and established
a manufacturing facility in China. The Company's net sales increased 26.2% to
$94.0 million in the nine months ended December 31, 1997 from $74.5 million
in the comparable period in fiscal 1997. Approximately $15.6 million of the
Company's sales for the nine months ended December 31, 1997 are from these
acquired companies.
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, (iii) purchase
in June 1997 of RAS in Belgium, with annual net sales of approximately $10.0
million and (iv) purchase in January 1998 of EDM in Australia, with annual
net sales of approximately $4.6 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 nine month periods ending December 31, 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 and
third quarters 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 Nine months Fiscal year
ended Dec. 31, ended Dec. 31, ended 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 69.3 65.7 66.3 66.2 64.2 66.9
Research and development 7.2 7.7 7.0 7.8 8.0 11.2
Marketing, administrative
and general 22.7 19.6 22.3 19.6 21.1 25.1
Purchased in-process
research and development 22.3
---- ---- ---- ---- ---- ----
Operating income (loss) 0.8 7.0 4.4 6.4 6.7 (25.5)
Interest income 0.3 0.3 0.1 0.0 0.2 0.8
Interest expense 1.3 1.8 2.0 1.8 1.7 0.8
Other income (expense) (0.1) 0.0 0.3 0.1 0.0 0.0
---- ---- ---- ---- ---- ----
Income (loss) before
income taxes (0.3) 5.5 2.8 4.7 5.2 (25.5)
Provision (benefit) for
income taxes (0.1) 1.4 0.9 1.4 1.5 (6.7)
---- ---- ---- ---- ---- ----
Net income (loss) (0.2)% 4.1% 1.8% 3.3% 3.7% (18.8)%
==== ==== ==== ==== ==== =====
Three Months Ended December 31, 1997 Compared to Three Months Ended December
31, 1996
The Company's net sales increased 18.6% to $31.3 million in the fiscal
1998 period from $26.4 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 1998, accounted for $6.5 million of this increase.
Excluding the impact of acquisitions, sales declined $1.6 million primarily
as a result of reduced sales volumes to the Company's largest domestic
distributor. In addition, during the third quarter of fiscal 1998, two of the
Company's larger customers were acquired by other companies. It is
anticipated that these transactions may result in some decline in sales to
these customers in the future. However, the Company is working to minimize
any potentially adverse impact.
Production expenses increased 25.2% to $21.7 million in the fiscal 1998
period from $17.4 million in the comparable period in 1997. The increase in
production expenses was primarily due to a corresponding increase in the
Company's net sales. Gross margin during the third quarter of fiscal 1998 of
30.7% declined from the 34.3% gross margin reported for the third quarter of
fiscal 1997. Margins have been adversely impacted by lower margin sales from
companies acquired during fiscal 1998 as well as manufacturing inefficiencies
from the consolidation of manufacturing operations in China, previously
discussed.
Research and development expenses increased 10.7% to $2.3 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 7.2% in the fiscal 1998 period from 7.7% 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 37.6% to
$7.1 million in the fiscal 1998 period from $5.2 million in the comparable
period in fiscal 1997. As a percentage of net sales, marketing,
administrative and general expenses increased to 22.7% in the fiscal 1998
period from 19.6% in the comparable period in fiscal 1997. This increase was
primarily due to additional marketing, administrative and general expenses
related to the newly acquired companies and increased international marketing
expenditures. General expenses also included $250,000 of exchange losses
during the quarter ended December 31, 1997. Exchange losses were
insignificant during the same quarter last year. The Company is currently
reviewing strategies to reduce exposure to currency fluctuations.
Interest expense decreased to $0.4 million in the fiscal 1998 period from
$0.5 million in the comparable period in fiscal 1997. This decrease was
primarily due to the repayment of borrowings originally used to finance the
Company's international expansion and increased inventory levels. Borrowings
were repaid using proceeds from the second quarter offering of common stock.
The Company's effective income tax rate for the fiscal 1998 period was
31.2% compared to 26.1% for the comparable period in fiscal 1997. The higher
effective rate is due to a shift in the source of pretax income among
domestic and international entities.
Nine Months Ended December 31, 1997 Compared to Nine Months Ended December
31, 1996
The Company's net sales increased 26.2% to $94.0 million in the fiscal
1998 period from $74.5 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 $15.6 million of this increase.
Excluding the impact of these acquisitions, sales increased $3.9 million or
5.2% as a result of increased sales penetration across many accounts.
Production expenses increased 26.4% to $62.3 million in the fiscal 1998
period from $31.9 million in the comparable period in fiscal 1997 primarily
due to the corresponding increase in sales. Gross margins remained steady at
33.7% in the fiscal 1998 period compared to 33.8% reported in the comparable
year ago period.
Research and development expenses increased 12.9% to $6.6 million in the
fiscal 1998 period from $5.8 million in the comparable period in fiscal
1997. As a percentage of net sales, research and development expenses
decreased to 7.0% 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 43.4% to
$21.0 million in the fiscal 1998 period from $14.6 million in the comparable
period in fiscal 1997. As a percentage of net sales, marketing,
administrative and general expenses increased to 22.3% in the fiscal 1998
period from 19.6% in the comparable period in 1997. This increase was
primarily due to additional marketing, administrative and general expenses
related to the newly acquired companies and increased international marketing
expenditures. General expenses for the nine months ended December 31, 1998
also include $431,000 of losses associated with foreign exchange
transactions, an increase of approximately $325,000 over the same period of
fiscal 1997.
Interest expense increased to $1.9 million in the fiscal 1998 period from
$1.3 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
33.4% compared to 29.0% 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.
Nine Months Ended December 31, 1997. During the nine months ended
December 31, 1997, the Company used cash in its operations of $2.9 million.
This use of cash was primarily driven by an increase in net working capital
due to the increase in inventory related to the shift in manufacturing to the
Company's China facility and significant reductions in accounts payable,
payroll and other accruals.
During the nine months ended December 31, 1997, cash used for investing
activities was $8.5 million. Approximately $6.8 million was used for the
acquisition of RAS, DA Systems and $2.0 million was used for capital
expenditures, primarily for production tooling.
During the nine months ended December 31, 1997, cash flows provided by
financing activities were $16.6 million. Net proceed from the sale of common
stock were approximately $28.4 million, with $19.1 million of these proceeds
being used to repay outstanding borrowings.
Capital Resources. On December 31, 1997, the Company had cash balances
of $7.1 million. On that date, the Company also has $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 or required cash
expenditures.
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: August 11, 1998 /s/ Karl H. Kostusiak
Karl H. Kostusiak, President
/s/ Frank J. Ryan
Frank J. Ryan, Vice President,
Secretary and Treasurer
(Principal Financial Officer)
/s/ Christopher P. Gerace
Christopher P. Gerace
Chief Accounting Officer
(Principal Accounting Officer)
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
Not Applicable
Item 6. Exhibits and Reports for Form 8-K.
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
On February 2, 1998, a Form 8-K was filed under Item 5, related
to the Registrant's acquisition of all of the outstanding stock
of Electronics Design & Manufacturing Pty Limited on January 21,
1998. No financial reports were included with this report.
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.
10 (c) Deferred Compensation Plans are included as Exhibit 10(c) of this
Quarterly Report on Form 10-Q.
(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.
EXHIBIT 10(c)
DETECTION SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
[8/20/97 Restatement]
1. Purpose
Detection Systems, Inc. (the "Company") has adopted this Deferred
Compensation Plan (the "Plan") to assist its officers with their
individual tax and retirement income planning and to permit the Company to
remain competitive in attracting, retaining, motivating and rewarding key
executives who can directly influence the Company's operating results.
The Plan permits officers to defer the receipt of salary or bonuses which
they may be entitled to receive from the Company and the Company to make
Company contributions for the benefit of its officers. The Plan was
originally adopted as of August 1, 1986. This restatement is effective as
of August 20, 1997.
2. Eligibility
Any officer of the Company is eligible to participate in this Plan.
3. Contributions
a. Company Contributions
The Company may contribute to an officer's Participant Account
any amount, at any time and for any reason as the Company in its sole
discretion may determine. The Company has no obligation to make such
contributions to any officer's account and contributions need not be the
same for all officers.
b. Officer Deferrals
(1) Amount of Deferral. In addition to Company
contributions, a participant may elect to defer receipt of up to 10
percent of his or her base salary and up to 100 percent of any bonus
otherwise payable to the participant by the Company during a calendar year.
(2) Time for Electing Deferral. An election to commence a
deferral may be made at any time in accordance with the procedures set
forth in subsection (3) below, provided that any election to defer
compensation must be made prior to the time that such compensation is to
be earned by the participant. Any election so made shall remain in effect
until the participant elects in writing to change his or her election.
(3) Manner of Electing Deferral. A participant shall elect a
deferral by giving written notice to the Committee in a form prescribed by
the Committee. The notice shall include (1) the amount to be deferred;
(2) the period with respect to which the deferral relates; (3) an election
of a lump sum payment or the number of monthly installments (not to exceed
120) for the payment of the deferred amounts; and (4) the date benefit
payments are to be made or to commence. A participant may designate any
date for the commencement of benefit payments but in the event the
participant retires or otherwise terminates employment, benefit payments
shall commence within 60 days of retirement or termination notwithstanding
any later date specified in the participant's election form. In addition,
if any scheduled payment from this Plan during a taxable year of the
Company would, in combination with other compensatory payments to the
participant during such year, result in the participant's compensation
exceeding the $1 million cap under Code Section 162(m), the Company in its
sole discretion may defer benefit payments to the first subsequent year
when the participant's compensation will not exceed the $1 million cap.
4. Participant Accounts
For each participant there shall be established both a Participant
Interest Account and a Participant Stock Account (collectively referred to
as the Participant Account). Each Participant Interest Account shall be
credited with the amounts deferred by, or contributed by the Company on
behalf of, a participant plus an assumed annual interest on such amounts
at a rate designated by the Committee from time to time as the benchmark
assumed interest rate. This assumed interest shall be compounded annually
and treated as earned from the date of crediting to the date of
withdrawal. The Participant Stock Account shall be credited at the end of
each month with the number of shares of Company Common Stock that could be
purchased at the Common Stock's then fair market value with the amounts
deferred by, or contributed by the Company on behalf of, a participant
each month plus any hypothetical dividends payable during such month on
the Company Common Stock previously credited to the Participant Stock
Account. The value of each Participant Interest and Stock Account shall
be adjusted no less frequently than monthly to reflect contributions to
the Account, payments from the Account as hereinafter provided, and
assumed interest on the Interest Account or additional stock purchases
from hypothetical dividends on the Stock Account. The Stock Account shall
also be adjusted no less frequently than monthly to reflect any gains (or
losses) in the fair market value of Company Common Stock.
All amounts credited to Participant Accounts shall be fully vested
at all times. Except for the possible claims of the Company's general
creditors, they shall not be subject to forfeiture on account of any
action by a participant or by the Company, including termination of
employment.
The maintenance of individual Participant Accounts is for
bookkeeping purposes only. The Company is not obligated to make actual
contributions to fund this plan or to acquire or set aside any particular
assets for the discharge of its obligations, nor is any participant to
have any property rights in any particular assets held by the Company,
whether or not held for the purpose of funding the Company's obligations
hereunder.
5. Payment of Deferred Amounts
No withdrawal may be made from a Participant Account except as provided in
this section 5. Payments from an Account shall normally commence within
60 days following a participant's retirement or other termination of
employment provided that a participant may elect an earlier date for
payment of his own deferrals in the election form to which his deferred
amounts relate. In the case of financial hardship, the Committee, in its
sole discretion, may distribute all or a portion of an Account before
termination of employment but the amount of the distribution shall not
exceed the amount needed to relieve the financial hardship. In the case
of a potential violation of the $1 million cap on compensation under Code
Section 162(m), the Company may defer payments to a later year as
authorized in section 3. Any payments deferred for Section 162(m)
purposes shall be paid as soon as payment would no longer constitute a
violation of the Code Section 162(m) compensation cap. Such payments
shall be made in a manner as consistent as possible with the participant's
original deferral election. For example, if installment payments were
elected, the originally scheduled installment payments shall be made on
schedule for a year even if the participant is paid a lump sum in that
same year for the deferred payments.
At any time prior to his becoming eligible to commence receiving
benefits, the participant shall make a single, irrevocable election with
the Committee to receive his benefits from either his Participant Interest
Account or his Participant Stock Account. If no such election is made, or
in the event of the participant's death, payment shall be made from
whichever account has the higher value, measured at the time of the
benefit commencement date. Payments from an Interest Account shall be
made only in cash and payments from a Stock Account shall be made only in
stock, provided that any fractional shares from a Stock Account shall be
paid in cash.
An aggregate of 182,250 shares of Company Common Stock (subject to
substitution or adjustment as provided below) shall be available for stock
payments under this Plan. Such shares may be authorized and unissued
shares or may be treasury shares. In the event of any change in the
Common Stock of the Company by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up,
combination, or exchange of shares, or rights offering to purchase Common
Stock at a price substantially below fair market value, or of any similar
change affecting the Common Stock, the number and kind of shares which
thereafter are available for stock payments under the Plan shall be
appropriately adjusted consistent with such change in such manner as the
Committee may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for, participants in
the Plan.
All payments from a Participant Account shall be made in the form of
either a lump sum payment or monthly installments over a period of years
not to exceed ten as elected by the participant. This election shall be
made on the participant's deferral notice, provided that the participant
may change this election, by written notice to the Committee at any time
up to 36 months prior to the actual benefit commencement date. Any
requested change of an earlier election that is made within the 36 month
period preceding the actual benefit commencement date shall not be
effective and shall be disregarded by the Committee. Where payments are
made in monthly installments, the balance credited to a Participant
Account shall be adjusted periodically for assumed interest or stock
purchases as provided in section 4.
If installment payments are elected, the first installment shall
equal the value of the Participant Account at such time multiplied by a
fraction, the numerator of which is one and the denominator of which is
the total number of monthly installments to be made. All subsequent
installments shall equal the value of the Participant Account as of the
last valuation date preceding the installment which is to be paid
multiplied by a fraction, the numerator of which is one and the
denominator of which is the total number of installments elected minus the
number of installments already paid.
In the event of a participant's death before the participant has
received all of the deferred payments to which the participant is entitled
hereunder, the remaining number of installments which would have been paid
to the participant shall be paid to the participant's estate in the same
manner that the participant would have received them.
Notwithstanding a participant's election of installment payments,
the Committee, in its sole discretion, shall have a right to accelerate
any such payments or to make payment of the balance in a Participant
Account in a lump sum.
6. Participant's Rights Unsecured
The right of any participant or, if applicable, the participant's
estate, to receive benefits under the provisions of this Plan shall be an
unsecured claim against the general assets of the Company. Any amounts
held in a Participant Account are a part of the Company's general assets
and shall be reachable by the general creditors of the Company.
7. Statement of Account
Statements will be sent to participants no less frequently than
annually setting forth the value of their Participant Accounts.
8. Transferability
The rights of a participant under this Plan shall not be
transferable other than by will or the laws of descent and distribution
and are exercisable during the participant's lifetime only by him or by
his guardian or legal representative.
9. Plan Administrator
The administrator of this Plan shall be a committee of the Board of
Directors of the Company as from time to time designated by the Board.
The Committee's members shall be non-employees of the Company. The
Committee shall have the authority to adopt rules and regulations for
carrying out the Plan and to interpret, construe and implement the
provisions of the Plan.
10. Amendment
This Plan may at any time or from time to time be amended, modified
or terminated by the Company's Board of Directors. No amendment,
modification or termination shall, without the consent of a participant,
adversely affect such participant's accruals in his or her Participant
Account.
11. Governing Law
This Plan and any participant elections hereunder shall be
interpreted and enforced in accordance with the laws of the State of New
York.
12. Effective Date
The effective date of this restated Plan is August 20, 1997.
IN WITNESS WHEREOF, the Company has caused its duly authorized
officer to execute this Plan document on its behalf this 20th day of
August 1997.
DETECTION SYSTEMS, INC.
By /s/ Frank J. Ryan
Frank J. Ryan, Vice President
Federal Tax Aspects
The Plan is a non-qualified deferred compensation plan under the
provisions of the Internal Revenue Code. At the time a Company
contribution or a participant's deferral of compensation is made, it is
intended that the participants will not recognize income, for Federal
income tax purposes. In addition, assumed interest and hypothetical
dividends will not be treated as income at the time they are credited to
the participant accounts.
Participants will recognize ordinary income at the time the Company
contributions and participant deferrals, together with the earnings
credited to these amounts, are actually paid out or made available to the
participants. The amount of such ordinary income will equal the amount of
cash received plus the fair market value, on the date of payment, of any
shares paid or made available.
The ultimate sale or exchange of any shares of common stock received
under the Plan will result in either long-term or short term capital gain,
or loss depending on the holding period. Under current law, long term
capital gains or losses will result upon the disposition of shares that
are held for more than six months. A participant's basis in the shares
will be the amount of income he recognizes at the time the shares were
actually paid or made available to the participant.
The Company is not entitled to deduct the amount of contributions or
deferrals into the Plan or the assumed interest or hypothetical dividends
credited to an account. Instead, the Company is entitled to take a
deduction at the time a participant recognizes income. The amount of the
deduction is the amount of income that a participant must recognize.
For Social Security tax (F.I.C.A.) purposes the Company
contributions and participant deferrals under the Plan are taxable as
"wages" at the time the services are performed. This will result in
Social Security taxes to a participant and to the Company only where a
participant is otherwise below the Social Security Wage Base at the time
the contributions or deferrals are made.
The Plan is not a tax-qualified plan under Section 401(a) of the
Internal Revenue Code and is not subject to ERISA. The Company has not
received any ruling from the Internal Revenue Service concerning the tax
consequences of the Plan.
<PAGE>
DETECTION SYSTEMS, INC.
DEFERRED STOCK BONUS PLAN
[8/20/97 Restatement]
1. Purpose
Detection Systems, Inc. (the "Company") has adopted this Deferred
Stock Bonus Plan (the "Plan") for the benefit of its key personnel who
wish to defer the receipt of stock bonuses which they may be entitled to
receive from the Company. The purposes of the Plan are to assist key
personnel with their individual tax and retirement income planning and to
permit the Company to remain competitive in attracting, retaining,
motivating and rewarding personnel who can directly influence the
Company's operating results. The Plan was originally adopted as of
January 1, 1989. This restatement is effective as of August 20, 1997.
2. Eligibility
All key personnel selected by the Committee established under
Section 9 shall be eligible to participate in this Plan.
3. Contributions
a. Company Contributions
The Company may contribute to a participant's account any
amount of Company Stock, at any time and for any reason as the Company in
its sole discretion may determine. The Company has no obligation to make
such contributions to any participant's account and contributions need not
be the same for all participants.
b. Participant Deferrals
(1) Amount of Deferral. In addition to Company
contributions, a participant may elect to defer receipt of up to 100
percent of any stock bonus otherwise payable to the participant by the
Company during a calendar year.
(2) Time for Electing Deferral. An election to commence a
deferral may be made at any time in accordance with the procedures set
forth in subsection (3) below, provided that any election to defer a stock
bonus must be made prior to the time that such stock bonus will be earned
by the participant. Any election so made shall remain in effect until the
participant elects in writing to change his or her election.
(3) Manner of Electing Deferral. A participant shall elect a
deferral by giving written notice to the Committee in a form prescribed by
the Committee. The notice shall include (1) the amount to be deferred;
(2) the period with respect to which the deferral relates; (3) an election
of a lump sum payment or the number of monthly installments (not to exceed
120) for the payment of the deferred amounts; and (4) the date benefit
payments are to be made or to commence. A participant may designate any
date for the commencement of benefit payments but in the event the
participant retires or otherwise terminates employment, benefit payments
shall commence within 60 days of retirement or termination notwithstanding
any later date specified in the participant's election form. In addition,
if any scheduled payment from this Plan during a taxable year of the
Company would, in combination with other compensatory payments to the
participant during such year, result in the participant's compensation
exceeding the $1 million cap under Code Section 162(m), the Company in its
sole discretion may defer benefit payments to the first subsequent year
when the participant's compensation will not exceed the $1 million cap.
4. Participant Accounts
For each participant there shall be established both a Participant
Interest Account and a Participant Stock Account (collectively referred to
as the Participant Account). Each Participant Interest Account shall be
credited with the fair market value, determined as of the date of the
deferral, of the stock bonus deferred on behalf of a participant plus an
assumed annual interest on such amounts at a rate designated by the
Committee from time to time as the benchmark assumed interest rate. This
assumed interest shall be compounded annually and treated as earned from
the date of crediting to the date of withdrawal. The Participant Stock
Account shall be credited at the end of each month with the number of
shares of Company Common Stock whose payment is deferred plus any
hypothetical dividends payable on the Company Common Stock previously
credited to the Participant Stock Account. The value of each Participant
Interest and Participant Stock Account shall be adjusted no less
frequently than monthly to reflect contributions to the Account, payments
from the Account as hereinafter provided, and assumed interest on the
Interest Account or additional stock purchases from hypothetical dividends
on the Stock Account. The Stock Account shall also be adjusted as of the
end of the Company's fiscal year to reflect gains (or losses) in the fair
market value of Company Common Stock. For purposes of this Plan, the fair
market value of the Company's Common Stock shall equal the Stock's average
share value during the fiscal year preceding the date on which the
valuation is performed. The Committee has the discretion to determine the
precise method for calculating the average share value.
All amounts credited to Participant Accounts shall be fully vested
at all times. Except for the possible claims of the Company's general
creditors, they shall not be subject to forfeiture on account of any
action by a participant or by the Company, including termination of
employment.
The maintenance of individual Participant Accounts is for
bookkeeping purposes only. The Company is not obligated to acquire or set
aside any particular assets for the discharge of its obligations, nor is
any participant to have any property rights in any particular assets held
by the Company, whether or not held for the purpose of funding the
Company's obligations hereunder.
5. Payment of Deferred Amounts
No withdrawal may be made from a Participant Account except as
provided in this section 5. Payments from an Account shall normally
commence within 60 days following the earlier of (1) the benefit
commencement date contained in the participant's initial deferral notice
or (2) the participant's retirement or other termination of employment.
At the election of a participant who could be subject to suit under
section 16(b) of the Securities Exchange Act of 1934, payment can be
delayed for up to six months and a day following termination of
employment. In the case of financial hardship, the Committee, in its sole
discretion, may distribute all or a portion of an Account before the
normal benefit commencement date determined above but the amount of the
distribution shall not exceed the amount needed to relieve the financial
hardship. In the case of a potential violation of the $1 million cap on
compensation under Code Section 162(m), the Company may defer payments to
a later year as authorized in section 3. Any payments deferred for
Section 162(m) purposes shall be paid as soon as payment would no longer
constitute a violation of the Code Section 162(m) compensation cap. Such
payments shall be made in a manner as consistent as possible with the
participant's original deferral election. For example, if installment
payments were elected, the originally scheduled installment payments shall
be made on schedule for a year even if the participant is paid a lump sum
in that same year for the deferred payments.
At any time prior to his benefit commencement date, the participant
shall make a single, irrevocable election with the Committee to receive
his benefits from either his Participant Interest Account or his
Participant Stock Account. If no such election is made or in the event of
the participant's death, payment shall be made from whichever account has
the higher value, measured at the time of the benefit commencement date.
Payments from an Interest Account shall be made only in cash and payments
from a Stock Account shall be made only in stock, provided that any
fractional shares from a Stock Account shall be paid in cash.
The number of shares of Company Common Stock that shall be available
for stock payments under this Plan shall be limited to a maximum of 10% of
the total shares outstanding. Such shares may be authorized and unissued
shares or may be treasury shares. In the event of any change in the
Common Stock of the Company by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up,
combination, or exchange of shares, or rights offering to purchase Common
Stock at a price substantially below fair market value, or of any similar
change affecting the Common Stock, the number and kind of shares which
thereafter are available for stock payments under the Plan shall be
appropriately adjusted consistent with such change in such manner as the
Committee may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for, participants in
the Plan.
All payments from a Participant Account shall be made in the form of
either a lump sum payment or monthly installments over a period of years
not to exceed ten as elected by the participant. This election shall be
made on the participant's deferral notice, provided that the participant
may change this election, by written notice to the Committee at any time
up to 36 months prior to the actual benefit commencement date. Any
purported change of an earlier election that is made within the 36 month
period preceding the actual benefit commencement date shall not be
effective and shall be disregarded by the Committee. Where payments are
made in monthly installments, the balance credited to a Participant
Account shall be adjusted periodically for assumed interest or stock
purchases as provided in section 4.
In the event of a participant's death before the participant has
received all of the deferred payments to which the participant is entitled
hereunder, the remaining number of installments which would have been paid
to the participant shall be paid to the participant's estate in the same
manner that the participant would have received them.
Notwithstanding a participant's election of installment payments,
the Committee, in its sole discretion, shall have a right to accelerate
any such payments or to make payment of the balance in a Participant
Account in a lump sum.
6. Participant's Rights Unsecured
The right of any participant or, if applicable, the participant's
estate, to receive benefits under the provisions of this Plan shall be an
unsecured claim against the general assets of the Company. Any amounts
held in a Participant Account are a part of the Company's general assets
and shall be reachable by the general creditors of the Company.
7. Statement of Account
Statements will be sent to participants no less frequently than
annually setting forth the value of their Participant Accounts.
8. Transferability
The rights of a participant under this Plan shall not be
transferable other than by will or the laws of descent and distribution
and are excercisable during the participant's lifetime only by him or by
his guardian or legal representative.
9. Plan Administrator
The administrator of this Plan shall be a committee of the Board of
Directors of the Company as from time to time designated by the Board.
The Committee's members shall be non-employees of the Company. The
Committee shall have the authority to adopt rules and regulations for
carrying out the Plan and to interpret, construe and implement the
provisions of the Plan.
10. Amendment
This Plan may at any time or from time to time be amended, modified
or terminated by the Company's Board of Directors. No amendment,
modification or termination shall, without the consent of a participant,
adversely affect such participant's accruals in his or her Participant
Account.
11. Governing Law
This Plan and any participant elections hereunder shall be
interpreted and enforced in accordance with the laws of the State of New
York.
12. Effective Date
The effective date of this restated Plan is August 20, 1997.
IN WITNESS WHEREOF, the Company has caused its duly authorized
officer to execute this Plan document on its behalf this 20th day of
August 1997.
DETECTION SYSTEMS, INC.
By /s/ Frank J. Ryan
Frank J. Ryan, Vice President
Exhibit 11
DETECTION SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Computation of Earnings Per Common
And Common Equivalent Share
For the Three Months Ended: December 31, 1997
--------------
Net Income $(75,898)
Weighted average number of shares 6,047,782
Common Stock equivalent due to assumed exercise
of stock options and warrants and deferred
compensation plan shares
Earnings per share
Basic $(0.01)
Diluted $(0.01)
For the Nine Months Ended: December 31, 1997
------------------
$1,729,448
Net Income
Plus: amortization of redeemable stock 11,984
---------
Net income available to common stockholders $1,741,432
=========
Weighted average number of shares 5,164,808
Common Stock equivalent due to assumed exercise
of stock options and warrants and deferred
compensation plan shares* 397,576
Earnings per share
Basic $0.34
====
Diluted $0.31
====
*Due to losses incurred in the third quarter, the effect of shares attributed
to options, warrants and deferred compensation was reduced by 195,236 in
arriving at the year-to-date weighted average number of shares included in
diluted earnings per share, to avoid anti-dilution.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 7,128,288
<SECURITIES> 0
<RECEIVABLES> 23,428,292
<ALLOWANCES> 563,400
<INVENTORY> 33,844,010
<CURRENT-ASSETS> 68,349,069
<PP&E> 29,744,332
<DEPRECIATION> 17,977,117
<TOTAL-ASSETS> 88,672,468
<CURRENT-LIABILITIES> 21,831,418
<BONDS> 0
0
0
<COMMON> 42,917,504
<OTHER-SE> 5,917,118
<TOTAL-LIABILITY-AND-EQUITY> 88,672,468
<SALES> 31,346,845
<TOTAL-REVENUES> 31,438,658
<CGS> 21,736,505
<TOTAL-COSTS> 31,130,105
<OTHER-EXPENSES> 9,371,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (418,948)
<INCOME-PRETAX> (110,395)
<INCOME-TAX> (34,497)
<INCOME-CONTINUING> (75,898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,898)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
