UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the period ended: March 31, 1996
Commission file number: 0-24820
VIDEO SENTRY CORPORATION
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1679157
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
6365 CARLSON DRIVE, EDEN PRAIRIE, MN 55346
(Address of principal executive offices)
(612) 934-9900
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve (12) months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past ninety (90) days.
Yes __X__ No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 par value - 4,814,462 shares as of April 15, 1996.
Total number of pages: 12
Exhibit index on page: 11
VIDEO SENTRY CORPORATION
FORM 10-QSB
FIRST QUARTER ENDED MARCH 31, 1996
INDEX
PART I -- FINANCIAL INFORMATION PAGE
Item 1 -- Financial Statements 3
Item 2 -- Management's Discussion and Analysis 7
of Financial Condition and Results of Operations
PART II -- OTHER INFORMATION
Item 5 -- Other Information 9
Item 6 -- Exhibits and Reports on Form 8K 9
Signatures 10
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
VIDEO SENTRY CORPORATION
March 31, December 31,
1996 1995
----------- -----------
ASSETS (Unaudited) (Note)
Current Assets:
Cash and Cash Equivalents $ 11,450 $ 221,606
Accounts Receivable 2,399,283 2,595,939
Inventory 2,633,054 2,552,706
Prepaid Expenses 186,823 106,775
----------- -----------
Total Current Assets 5,230,610 5,477,026
Property and Equipment:
Office Furniture and Equipment 553,399 553,399
Production Equipment 103,091 97,441
----------- -----------
656,490 650,840
Less Accumulated Depreciation (212,520) (164,360)
----------- -----------
443,970 486,480
Other Assets:
Patent and Organizational Costs (less
amortization of $27,428 and $25,328) 14,582 16,682
Software Development Costs 675,073 635,223
----------- -----------
689,655 651,905
----------- -----------
TOTAL ASSETS $ 6,364,235 $ 6,615,411
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 2,240,861 $ 2,223,969
Notes Payable 306,000 0
Accrued Expenses 476,778 464,905
Customer Deposits 10,000 28,013
----------- -----------
Total Current Liabilities 3,033,639 2,716,887
Rent Abatement 20,894 22,028
Shareholders' Equity:
Common Stock, $.01 par value, authorized-
10,000,000 shares; issued and
outstanding March 31, 1996-4,794,462 shares,
December 31, 1995-4,727,184 shares 47,945 47,272
Additional Paid-In Capital 7,754,835 7,577,361
Accumulated Deficit (4,493,078) (3,748,137)
----------- -----------
Total Shareholders' Equity 3,309,702 3,876,496
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,364,235 $ 6,615,411
=========== ===========
Note: The Balance Sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
STATEMENTS OF OPERATIONS (UNAUDITED)
VIDEO SENTRY CORPORATION
Three Months Ended
March 31
--------------------------
1996 1995
----------- -----------
Net Sales $ 1,077,459 $ 2,293,542
Cost of Sales 1,200,955 1,735,930
----------- -----------
Gross Profit (123,496) 557,612
Operating Expenses:
Research, Development, Engineering 125,686 131,405
Sales and Marketing 206,259 104,043
General and Administrative 287,572 272,897
----------- -----------
619,516 508,345
----------- -----------
Operating Income (Loss) (743,012) 49,266
Interest Income (Expense) (1,928) 48,214
----------- -----------
Pre-Tax Income (Loss) (744,940) 97,480
Income Tax Expense 450
----------- -----------
Net Income (Loss) ($ 744,940) $ 97,030
=========== ===========
Net Income (Loss) Per Share ($ 0.16) $ 0.02
=========== ===========
Weighted Average Shares
and Share Equivalents 4,761,142 5,084,425
=========== ===========
STATEMENT OF CASH FLOW (UNAUDITED)
VIDEO SENTRY CORPORATION
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Operating Activities:
Net Income (Loss) ($ 744,940) $ 97,030
Non-Cash Expenses Included in Income:
Depreciation and Amortization 50,261 16,771
Rent Abatement (1,134) 6,426
Changes in Operating Assets & Liabilities:
(Increase) Decrease in Accounts Receivable 196,656 (1,171,484)
(Increase) Decrease in Inventories and Prepaids (160,396) (271,845)
Increase (Decrease) in Accounts Payable and Accruals 28,764 466,996
Increase (Decrease) in Customer Deposits (18,013) 24,167
----------- -----------
Net Cash Used in Operating Activities (648,802) (831,939)
Investing Activities:
Purchases of Property & Equipment (5,650) (96,919)
Purchases of Investments (338,915)
Purchased Software Development (39,851) (124,743)
----------- -----------
Net Cash Used in Investing Activities (45,501) (560,577)
Financing Activities:
Net Borrowings from Notes Payable 306,000
Proceeds from Exercise of Stock Options 178,147 94,325
----------- -----------
Net Cash Provided by Financing Activities 484,147 94,325
----------- -----------
Net Increase (Decrease) in Cash and Equivalents (210,156) (1,298,191)
Cash & Equivalents at Beginning of Period 221,606 2,902,536
----------- -----------
Cash and Equivalents at End of Period $ 11,450 $ 1,604,345
=========== ===========
</TABLE>
VIDEO SENTRY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-QSB and Item 10 of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1995.
NOTE 2 - INVENTORIES
Inventories consist primarily of raw materials and components on site.
NOTE 3 - SOFTWARE COSTS
The Company capitalizes software costs purchased from outside parties for its
point-of-sale product. The Company will amortize software costs based on units
sold or straight-line over three years, which ever is less. Amortization will
begin when the software product is tested and complete.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(First Quarter Ended March 31, 1996)
RESULTS OF OPERATIONS
SALES. Sales for the first quarter ended March 31, 1996 were $1,077,000, a
decrease of 53% compared to sales of $2,294,000 for the first quarter of 1995.
The decrease in sales was due to unexpected delays in the ability of several
existing customers to move forward during the first quarter. For the first
quarter of 1996, approximately 85% of total sales were to two customers with
multiple locations. The Company expects sales to these customers to be a
smaller, but still significant, percentage of total sales in the remainder of
1996, as sales to other customers increase.
GROSS PROFIT. Gross profit for the first quarter of 1996 was ($123,000),
compared to $558,000 for the first quarter of 1995. The decrease in gross profit
for the first quarter of 1996 was due to the decrease in sales, higher
manufacturing overhead and higher service costs as the Company increased its
service organization to support the increased number of installed customer
sites. While the gross profit and related gross profit margin were negative for
the first quarter of 1996, the direct material margin was 39.2% compared to
33.9% for the first quarter of 1995, as the Company has been able to reduce
direct material costs on its new SentryVision system. The decrease in the
Company's gross profit margin for the first quarter of 1996 was due to the lower
level of sales with which to leverage the fixed manufacturing overhead and
service organization costs included in cost of sales. The decrease in the gross
profit margin for the first quarter was also due to the Company's increased
investment in customer support and training capabilities. The Company expects
that the reduced material costs on its new SentryVision system and its
installation process should provide an increase in the gross profit margin as
sales increase.
OPERATING EXPENSES. Operating expenses for the first quarter of 1996 were
$620,000, an increase of 22% compared to $508,000 for the first quarter of 1995,
but a decrease of 20% from recurring operating expenses of $773,000 for the
fourth quarter of 1995. Research, development and engineering expenses decreased
slightly in the first quarter of 1996 since the Company completed development of
its second generation system in 1995. Sales and marketing expenses increased 98%
in the first quarter of 1996 as the Company has expanded its sales efforts to
identify new customers and further penetrate existing markets and has hired
additional sales personnel. General and administrative expenses increased 5% in
the first quarter of 1996 due to the addition of administrative personnel and
higher insurance costs. Operating expenses as a percentage of sales were 57% for
the first quarter of 1996 compared to 22% for the first quarter of 1995 and 35%
for all of 1995. The increase as a percentage of sales in the first quarter of
1996 was due to the lower level of sales and the increase in operating expenses
compared to the first quarter of 1995. The Company expects that operating
expenses will be smaller as a percentage of sales for 1996 compared to 1995 as
the Company is able to leverage management resources and certain fixed costs.
INTEREST INCOME (EXPENSE). Net interest expense was $2,000 for the first quarter
of 1996, compared to interest income of $ 48,000 for the first quarter of 1995.
The Company earned interest income in 1995 from the investment of its cash
balances.
NET INCOME (LOSS). Net loss for the first quarter of 1996 was $745,000, or $.16
per share, compared to net income of $97,000, or $.02 per share, for the first
quarter of 1995. The net loss was the result of the significant decrease in
sales and gross profit and the increase in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations primarily through private and
public sales of Common Stock for which the Company has received an aggregate of
$7,600,000 in net proceeds. Working capital at March 31, 1996 was $2,197,000. In
March 1996, the Company entered into a $2,500,000 working capital line of credit
with a bank. The line of credit is secured by substantially all the assets of
the Company and the personal guarantee of the Company's President. The line of
credit accrues interest at a rate equal to 3% above the bank's reference rate
and matures in March 1998.
During the first quarter of 1996, cash used in operations was primarily for
increases in inventory and prepaid expenses and to fund the operating loss. The
Company also invested $40,000 in purchased software costs for its point of sale
system during the first quarter.
The Company believes that the working capital available at March 31,1996,
combined with the proceeds from its working capital line of credit and expected
results of operations in 1996, will be sufficient to fund current business
operations and anticipated growth through at least 1996. The Company anticipates
that its working capital needs will continue to increase due to the expected
growth in the business and expects that it may need to raise additional capital
through debt or equity financing to finance its expected growth beyond 1996.
There is no assurance that such additional financing will be available when
needed or on terms which are acceptable to the Company.
The Company has not been significantly impacted by inflation since its inception
and did not have any material commitments for fixed assets as of March 31, 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
N/A
Item 2. Changes in Securities
N/A
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submission of Matters to a Vote of Security Holders
N/A
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit Index on page following signatures
b. Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended March 31, 1996.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VIDEO SENTRY CORPORATION
(Registrant)
May 9,1996 /s/ Andrew L. Benson
Date Andrew L. Benson
President and
Chief Executive Officer
May 9, 1996 /s/ Ronald W. McClurg
Date Ronald W. McClurg
Chief Financial Officer and
Secretary
EXHIBIT INDEX TO FORM 10-QSB
Exhibit No. Description Page
- - ---------------- ------------------------------------ -------------
11.1 Computation of Net Income (Loss) per share
27 Financial Data Schedule
EXHIBIT 11.1
COMPUTATION OF NET INCOME (LOSS) PER SHARE
VIDEO SENTRY CORPORATION
Three Months Ended
March 31,
--------------------------
1996 1995
----------- -----------
PRIMARY:
Weighted average shares outstanding 4,761,142 4,575,351
Net effect of dilutive stock options and
warrants - based on treasury stock
method using average market price 509,075
----------- -----------
TOTAL 4,761,142 5,084,426
=========== ===========
Net Income (Loss) ($ 744,940) $ 97,030
=========== ===========
Net Income (Loss) per share ($ 0.16) $ 0.02
=========== ===========
FULLY DILUTED:
Weighted average shares outstanding 4,761,142 4,575,351
Net effect of dilutive stock options and
warrants - based on treasury stock
method using ending market price
if higher than average market price 552,025
----------- -----------
TOTAL 4,761,142 5,127,376
=========== ===========
Net Income (Loss) ($ 744,940) $ 97,030
=========== ===========
Net Income (Loss) per share ($ 0.16) $ 0.02
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,450
<SECURITIES> 0
<RECEIVABLES> 2,399,283
<ALLOWANCES> 0
<INVENTORY> 2,633,054
<CURRENT-ASSETS> 5,230,610
<PP&E> 656,490
<DEPRECIATION> 212,520
<TOTAL-ASSETS> 6,364,235
<CURRENT-LIABILITIES> 3,033,639
<BONDS> 0
0
0
<COMMON> 47,945
<OTHER-SE> 7,754,835
<TOTAL-LIABILITY-AND-EQUITY> 6,364,235
<SALES> 1,077,459
<TOTAL-REVENUES> 1,077,459
<CGS> 1,200,955
<TOTAL-COSTS> 1,200,955
<OTHER-EXPENSES> 619,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,928
<INCOME-PRETAX> (744,940)
<INCOME-TAX> 0
<INCOME-CONTINUING> (744,940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (744,940)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
