UNITED STATES
Form 6-K
Report of Foreign Issuer
For the month of October 2003
Silent Witness Enterprises Ltd.
6554 176 Street
[indicate by check mark whether the registrant files or will file annual reports
Form 20-F X Form 40-F
[indicate by check mark whether the registrant by furnishing information contained
Yes No X
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.
| SILENT WITNESS ENTERPRISES LTD. | ||||
| Date: December 23, 2003 | By: /s/ R. K. (Rob) Bakshi | |||
| Name: R. K. (Rob) Bakshi | ||||
| Title: Chairman, President & CEO | | |||
Quarter Ended October 31, 2003
(Expressed in Canadian Dollars)
To Our Shareholders
Revenues for the first quarter ended October 31, 2003 were $12,508,629, an 18 percent decrease from the prior year’s comparable quarter of $15,247,626. Earnings for the quarter totaled $18,861 compared to $1,051,097 during the prior year’s first quarter and represented $0.00 earnings per share compared with $0.14 basic earnings per share ($0.13 fully diluted) for the prior year’s first quarter. Cash Flow from operations, before changes in working capital amounted to $557,147 down from $2,073,759 in the prior year’s first quarter.
Fully $1,85 million, or two thirds, of the total decrease in revenues in the first quarter of Fiscal 2004 as compared to the comparable quarter in Fiscal 2003 was due to the strengthening of the Canadian dollar versus the US dollar.
The current year’s first quarter results are inclusive of legal, travel and other costs of $601,889 associated with the take over bid of the company by Honeywell International Inc.
Analysis
Sales in the CCTV division decreased by 19% to $9,945,838 from $12,229,554 in the prior year’s first quarter. The strengthening Canadian dollar accounted for $1,45 million or 63% of this decrease.
Sales of product for the Original Equipment Manufacturing (OEM) division totaled $708,438, a decrease of 26 percent from the comparable quarter’s sales of $958,986 last year. The strengthening Canadian dollar accounted for about $0.11 million, or 45%, of this decrease. The OEM backlog, as of October 31, 2003, amounts to $2,100,779.
Sales in the Mobile division decreased by 10% to $1,854,353 from $2,059,086. Without the impact of the strengthening Canadian dollar, sales of the Mobile division in the first quarter of fiscal 2004 would have exceeded the sales in fiscal 2003.
Gross margin on products sold totaled $5,612,878 or 45 percent of sales compared to $7,157,945 or 47 percent of sales in the first quarter of the prior fiscal year. The decrease in the gross margin rate was due to a change in the sales mix and the strengthening Canadian dollar.
Expenses for the quarter ended October 31, 2003 totaled $5,056,655 or 40 percent of sales compared to $5,479,609 or 36 percent of sales in the prior fiscal year’s first quarter. This $422,954 decrease represents an 8% decrease in expenses.
In the first quarter ended October 31, 2003, working increased by $553,879 over the amount at July 31, 2003. The working capital ratio improved to 6.9 compared to 6.0 at July 31, 2003. Inventory turns decreased to 3.3 times compared to 3.5 times in the previous quarter. Days sales in accounts receivable increased to 81 days from 67 days at July 31, 2003, due to the fact that the company made a significantly increased number of shipments in the month of October in the latest quarter.
Business Update
In August, the Company launched the LumaView SWX200 infrared illuminator. Housed in a rugged, machined aluminum enclosure and utilizing state of the art “gold-coat” bulb and reflector technology, the product can be utilized for the covert illumination of any scene. The product enables IR-sensitive CCTV cameras to produce high quality images under nighttime conditions without the use of obtrusive, visible light.
In September, the Company announced that it released two tamper resistant, bullet-style cameras that capture images in total darkness. The SWX81 and SWX82 Night Hawk cameras offer 24/7 surveillance by combining built-in infrared LED illuminators with true day/night camera boards.
The LumaView SWX200, the SWX81 and the SWX82 represent a convergence of the Company’s long history of developing security products noted for both toughness and durability with the latest advancements in infrared technology. This combination is ideally suited for the 24/7 mission critical surveillance applications that the Company views as a strong growth market.
On October 28th Honeywell International Inc. made a bid to acquire all issued and outstanding shares of the Company at a price of $11.27 per share. The bid is due to expire on December 3, 2003 unless otherwise extended.
Silent Witness Enterprises Ltd.
Consolidated Statements of Operations
| CANADIAN DOLLARS, UNAUDITED, PREPARED BY MANAGEMENT | THREE MONTHS ENDED OCTOBER 31 | ||||||||
| 2003 | 2002 | ||||||||
| Revenue | $ | 12,508,629 | $ | 15,247,626 | |||||
| Cost of sales | 6,879,889 | 8,089,681 | |||||||
| Gross margin | 5,628,740 | 7,157,945 | |||||||
| Operating expenses | |||||||||
| Sales and marketing | 1,750,134 | 2,129,920 | |||||||
| General and administration | 943,613 | 1,207,342 | |||||||
| Research and development (net of ITC) (2004: Q1 $275,952) (2003: Q1 $196,464) | 1,124,482 | 982,201 | |||||||
| Amortization | 746,730 | 763,957 | |||||||
| Service | 207,766 | 160,899 | |||||||
| Foreign currency loss | 283,930 | 235,290 | |||||||
| 5,056,655 | 5,479,609 | ||||||||
| Earnings before interest, other expense and income taxes | 572,085 | 1,678,336 | |||||||
| Interest / other income (expense) | 44,243 | (523 | ) | ||||||
| Cost related to takeover bid (note 3) | (601,889 | ) | — | ||||||
| (557,646 | ) | (523 | ) | ||||||
| Earnings before income taxes | 14,439 | 1,677,813 | |||||||
| Income taxes expenses (recovery) | (4,422 | ) | 626,716 | ||||||
| Net earnings for the period | $ | 18,861 | $ | 1,051,097 | |||||
| Retained earnings, beginning of period | $ | 19,031,455 | $ | 16,643,049 | |||||
| Net earnings for the period | 18,861 | 1,051,097 | |||||||
| Retained earnings, end of period | $ | 19,050,316 | $ | 17,694,146 | |||||
| Earnings per share | |||||||||
| Basic | $ | 0.00 | $ | 0.14 | |||||
| Diluted | $ | 0.00 | $ | 0.13 | |||||
| Weighted average number of shares | |||||||||
| Basic | 7,468,541 | 7,588,402 | |||||||
| Diluted | 7,676,307 | 7,810,086 | |||||||
Silent Witness Enterprises Ltd.
Consolidated Balance Sheets
| CANADIAN DOLLARS, PREPARED BY MANAGEMENT | October 31, 2003 | July 31, 2003 | |||||||
| Unaudited | Audited | ||||||||
ASSETS | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | $ | 9,139,805 | $ | 9,923,008 | |||||
| Accounts receivable | 11,260,018 | 10,346,184 | |||||||
| Income taxes recoverable | 841,611 | 763,995 | |||||||
| Inventory | 8,374,896 | 8,886,067 | |||||||
| Prepaid expenses and deposits | 764,130 | 474,907 | |||||||
| 30,380,460 | 30,394,161 | ||||||||
| Property, plant and equipment (net) | 7,399,533 | 7,546,872 | |||||||
| Other assets (net) (note 1) | 5,231,804 | 5,733,514 | |||||||
| 12,631,337 | 13,280,386 | ||||||||
| $ | 43,011,797 | $ | 43,674,547 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
| Current liabilities | |||||||||
| Accounts payable and accrued liabilities | $ | 4,178,096 | $ | 4,666,263 | |||||
| Warranty reserve | 453,936 | 438,936 | |||||||
| Current portion of LTD | 129,049 | — | |||||||
| 4,761,081 | 5,105,199 | ||||||||
| Long term liabilities | |||||||||
| Non-current liabilities (note 2) | 634,579 | 763,628 | |||||||
| Future income tax payable | 843,389 | 1,051,833 | |||||||
| Total liabilities | 6,239,049 | 6,920,660 | |||||||
| Shareholders’ equity | |||||||||
| Share capital | |||||||||
| Authorized:100,000,000 Common Shares without par value 10,000,000 preference shares without par value of which 1,450,000 are designated as Series A preferred | |||||||||
| Common shares outstanding: 7,468,541 (2003: 7,468,541) | 17,675,699 | 17,675,699 | |||||||
| Contributed surplus | 46,733 | 46,733 | |||||||
| Retained earnings | 19,050,316 | 19,031,455 | |||||||
| 36,772,748 | 36,753,887 | ||||||||
| $ | 43,011,797 | $ | 43,674,547 | ||||||
Commitments (note 1)
Silent Witness Enterprises Ltd.
Consolidated Statements of Cash Flow
| CANADIAN DOLLARS, UNAUDITED, PREPARED BY MANAGEMENT | THREE MONTHS ENDED OCTOBER 31 | |||||||||
| 2003 | 2002 | |||||||||
| Operations: | ||||||||||
| Net earnings | $ | 18,861 | $ | 1,051,097 | ||||||
| Items not involving cash | ||||||||||
| Amortization | 746,730 | 763,957 | ||||||||
| Future income taxes | (208,444 | ) | 258,705 | |||||||
| 557,147 | 2,073,759 | |||||||||
| Change in non-cash operating working capital | ||||||||||
| Accounts receivable | (913,833 | ) | (22,253 | ) | ||||||
| Income taxes recoverable | (77,616 | ) | 135,673 | |||||||
| Inventory | 511,171 | (140,544 | ) | |||||||
| Prepaid expenses and deposits | (289,223 | ) | (549,315 | ) | ||||||
| Accounts payable and accrued liabilities | (488,168 | ) | (499,680 | ) | ||||||
| Warranty reserve | 15,000 | 15,000 | ||||||||
| (1,242,669 | ) | (1,061,119 | ) | |||||||
| (685,522 | ) | 1,012,640 | ||||||||
| Investing: | ||||||||||
| Purchase of property, plant and equipment and other assets | (97,681 | ) | (220,346 | ) | ||||||
| (97,681 | ) | (220,346 | ) | |||||||
| Financing: | ||||||||||
| Share repurchases | — | (806,860 | ) | |||||||
| Principal payment | — | (2,376,450 | ) | |||||||
| — | (3,183,310 | ) | ||||||||
| Net (decrease) in cash and cash equivalents | (783,203 | ) | (2,391,016 | ) | ||||||
| Cash and cash equivalents, beginning of period | 9,923,008 | 2,391,016 | ||||||||
| Cash and cash equivalents, end of period | $ | 9,139,805 | $ | — | ||||||
Silent Witness Enterprises Ltd.
Notes to Interim Financial Statements: Segmented disclosures
| CANADIAN DOLLARS, PREPARED BY MANAGEMENT | ||||||||||||||||||||||||||||
| SEGMENT INFORMATION | CCTV | % of Total | Mobile | % of Total | OEM | % of Total | Total | |||||||||||||||||||||
| FOR THE THREE MONTHS ENDED OCTOBER 31, 2003 | ||||||||||||||||||||||||||||
| Revenue | $ | 9,945,838 | 80 | % | $ | 1,854,353 | 15 | % | $ | 708,438 | 5 | % | $ | 12,508,629 | ||||||||||||||
| Cost of sales including sales and marketing | 6,621,420 | 77 | % | 1,409,279 | 16 | % | 599,323 | 7 | % | 8,630,023 | ||||||||||||||||||
| Segment profit | $ | 3,324,418 | 86 | % | $ | 445,074 | 11 | % | $ | 109,115 | 3 | % | $ | 3,878,606 | ||||||||||||||
| FOR THE THREE MONTHS ENDED OCTOBER 31, 2002 | ||||||||||||||||||||||||||||
| Revenue | $ | 12,229,554 | 80 | % | $ | 2,059,086 | 14 | % | $ | 958,986 | 6 | % | $ | 15,247,626 | ||||||||||||||
| Cost of sales including sales and marketing | 8,349,804 | 83 | % | 1,217,863 | 12 | % | 651,934 | 5 | % | 10,219,601 | ||||||||||||||||||
| Segment profit | $ | 3,879,750 | 78 | % | $ | 841,223 | 17 | % | $ | 307,052 | 6 | % | $ | 5,028,025 | ||||||||||||||
| RECONCILIATION OF SEGMENT PROFITS | THREE MONTHS ENDED | |||||||||||||||
| FOR THE PERIOD ENDED OCTOBER 31 | 2003 | 2002 | ||||||||||||||
| Revenues | $ | 12,508,629 | 100 | % | $ | 15,247,626 | 100 | % | ||||||||
| Cost of sales | 6,879,889 | 55 | % | 8,089,681 | 53 | % | ||||||||||
| Gross margin | 5,628,740 | 45 | % | 7,157,945 | 47 | % | ||||||||||
| Sales and marketing | 1,750,134 | 14 | % | 2,129,920 | 14 | % | ||||||||||
| Segment profit | $ | 3,878,606 | 31 | % | $ | 5,028,025 | 33 | % | ||||||||
| GEOGRAPHIC INFORMATION | THREE MONTHS ENDED | |||||||||||||||
| FOR THE PERIOD ENDED OCTOBER 31 | 2003 | 2002 | ||||||||||||||
| United States | $ | 9,413,890 | 75 | % | $ | 11,814,258 | 77 | % | ||||||||
| International | 2,674,613 | 21 | % | 2,853,680 | 19 | % | ||||||||||
| Canada | 420,126 | 4 | % | 579,688 | 4 | % | ||||||||||
| Segment revenues | $ | 12,508,629 | 100 | % | $ | 15,247,626 | 100 | % | ||||||||
Notes to Unaudited Consolidated Financial Statements
Quarter ended October 31, 2003 (Expressed in Canadian Dollars)
The Company’s interim consolidated financial statements do not include all disclosures required by Canadian generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements for the year ended July 31, 2003.
| 1. | COMMITMENTS |
On October 11, 2002, the Company entered into agreements to purchase 11.9 acres of land in Surrey, British Columbia for $3,178,000. A portion of the land was acquired during the third quarter of fiscal 2003 for $369,000. On May 5, 2003, the remaining portion of land was acquired for $2,809,000 including related license fees. An additional $534,000 was incurred during the fourth quarter of 2003 for legal, project management and architectural services.
| 2. | SETTLEMENT OF CLAIM BY AMERICAN BUILDING CORPORATION |
During the year ended July 31, 2003, the Company settled a claim from prior years with American Building Corporation (formerly Ultrak Inc.). The settlement requires the Company to make 8 payments of US $100,000 per year, with the first payment due on August 1, 2003, as compensation for past sales of licensed products. The net present value of this obligation has been recorded in other expenses. In addition, the Company agreed to pay a 7% royalty fee on future sales of licensed products, which will be recorded at the time the licensed products are sold.
| 3. | OTHER COSTS |
On October 10, 2003, Honeywell International Inc. (NYSE: HON) and the company entered into a definitive agreement under which Honeywell has agreed to make an all cash takeover bid to acquire all of the outstanding common shares of the company at $11.27 CDN per share. The board of directors of the company unanimously recommended that its shareholders accept Honeywell’s offer.
On October 28, 2003, Honeywell mailed its offering circular. The Offer is open for acceptance until 4:30 p.m. (PST), on December 3, 2003, unless withdrawn or extended and is subject to the condition, among others, that the number of shares validly tendered to the Offer and not withdrawn constitutes not less than 90% of the company common shares.
During the first quarter, Silent Witness incurred $602,000 in travel, legal and accounting expenses relating to the takeover bid.