Table of Contents
UNITED STATES
Form 6-K
Report of Foreign Issuer
For the month of October 2002
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
Table of Contents
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 18, 2002 | By: /s/ Michael Longinotti | |||
| Name: Michael Longinotti | ||||
| Title: Chief Financial Officer | | |||
Table of Contents
Silent Witness First Quarter Report 2003
Quarter Ended October 31, 2002
(Expressed in Canadian Dollars)
To Our Shareholders:
I am pleased to announce that revenues for the first quarter ended October 31, 2002 increased by 8 percent to $15,248,000 from the prior year’s first quarter revenue of $14,134,000. The increase in revenue was due to increased sales of CCTV video storage and networking products and sales of the Digital Video Sensor system to The Stanley Works. Earnings for the first quarter ended October 31, 2002 were $1,051,000, compared to $207,000 for the first quarter last year, a five fold increase. This represented $0.14 basic earnings per share ($0.13 diluted) compared to $0.03 basic earnings per share ($0.03 diluted) in the prior year’s first quarter. Cash flow from operations, before changes in working capital, increased to $2,074,000 from $1,001,000 in the prior year’s first quarter. The prior year’s first quarter included $992,000 of integration costs associated with the acquisition and restructuring of the CCTV business acquired from Gyyr, Inc.
Analysis
Sales in the CCTV division increased to $12,230,000 from $11,413,000 in the prior year’s first quarter due to a $817,000 increase in sales of video recording and networking equipment. Sales of video recording equipment totaled $4,339,000 compared to $3,462,000 in the prior year’s first quarter. The video recording and networking business was purchased from Gyyr Inc. effective September 12, 2001 and the financial results for the quarter ended October 31, 2001 included sales and operating costs of the related business beginning from the date of acquisition.
Sales of product for the Original Equipment Manufacturing (OEM) division totaled $959,000, an increase of over 600 percent from the comparable quarter last year mainly due to increased sales of the Digital Video Sensor system and a related product to The Stanley Works. OEM sales fluctuate significantly from quarter to quarter due to the timing of customer orders and shipments.
Sales in the Mobile division decreased to $2,059,000 from $2,600,000 primarily due to cutbacks in school district spending on video equipment.
Gross margin on products sold totaled $7,158,000 or 47 percent of sales compared to $6,272,000 or 44 percent of sales in the first quarter of the prior year. The increase in the gross margin rate was due to a refocusing of the sales mix of video storage products away from low margin VCRs to higher margin digital recorders. Also, increased efficiencies were achieved from combining the manufacturing location in Anaheim with the Surrey location during the second quarter of the last fiscal year.
Expenses for the quarter ended October 31, 2002 totaled $5,480,000 or 36 percent of sales compared to $4,884,000 or 35 percent of sales (before the prior year’s one-time integration costs of $992,000) in the prior year’s first quarter. Most of the increase in costs relative to sales was due to a foreign currency loss of $235,000 in the current year’s first quarter compared to a foreign currency gain of $169,000 in the prior year’s first quarter. General and administrative expenses increased mainly due to insurance and legal costs and amortization expense was higher than the prior year due to capital costs associated with the acquisition of the Gyyr product lines. Research and development expenses, net of investment tax credits, totaled $982,201 or 6 percent of revenue compared to $1,021,000 in the prior year’s first quarter. The rate of research and
Table of Contents
development spending is expected to increase during the year as software enhancements are made to the digital recording products and development progresses on the digital networked camera system.
At October 31, 2002, working capital totaled $23,483,000 compared to $22,437,000 at July 31, 2002 and the working capital ratio increased to 5.6 from 3.8. The increase in working capital was primarily due to an increase in prepaid expenses for future inventory deliveries and insurance. At the end of the first quarter inventory turns remained unchanged at 2.6 and days sales in accounts receivable improved slightly to 79 days from 80 days at July 31, 2002. During the quarter, the Company retired all of its bank debt for $2,376,000 and repurchased 143,400 common shares for $807,000 under terms of a Normal Course Issuer Bid.
Business Update
In November, the Company announced that the Pocono Mountain School District of Swiftwater, Pennsylvania authorized The Protection Bureau of Exton, Pennsylvania to purchase and install 105 Silent Witness Digital Chaperone™ monitoring systems in their school bus fleet. Digital Chaperone offers quick and easy image retrieval, requires little or no maintenance and eliminates tape replacement and storage compared to older VCR storage systems.
During October, the Company made several important enhancements to its flagship MagnaView™ and PrimaView™ modular camera system lines, which included the release of a high performance Day/Night camera board that is ideal for mission critical applications requiring 24/7 monitoring. The Company also released the MagnaView V28Plus, which is a die cast metal enclosure that can be flush or surface mounted. It is ideal for any environment where there is a high risk of damage, vandalism or tampering.
Continuing growth in revenue and personnel has created the need to have additional space in Surrey. To accommodate the growth, in October, the Company entered into agreements to purchase 11.9 acres of land in Surrey, British Columbia for $3,072,000. Completion of the purchases is subject to certain conditions. The Company is investigating the use of this site for the construction of a new facility to house the functions currently performed at its head office in Surrey. The Company intends to investigate all financing options for the proposed facility. The acquisition of the land is expected to be financed under the Company’s current banking facility. Leases of the Company’s current premises expire March 31, 2004.
I would like to thank all of our customers, employees, directors, business partners, and shareholders for helping us achieve our goals.
Sincerely,
“R.K. (Rob) Bakshi”
Chairman, President & CEO
December 6, 2002
Table of Contents
Silent Witness Enterprises Ltd.
CANADIAN DOLLARS, UNAUDITED, PREPARED BY MANAGEMENT
| THREE MONTHS ENDED OCTOBER 31 | ||||||||||
| 2002 | 2001 | |||||||||
| Revenue | $ | 15,247,626 | $ | 14,134,302 | ||||||
| Cost of sales | 8,089,681 | 7,862,740 | ||||||||
| Gross margin | 7,157,945 | 6,271,562 | ||||||||
| Operating expenses | ||||||||||
| Sales and marketing | 2,129,920 | 2,008,917 | ||||||||
| General & administration | 1,207,342 | 1,078,039 | ||||||||
| Research and development (net of ITC) | 982,201 | 1,021,234 | ||||||||
| Amortization | 763,957 | 683,954 | ||||||||
| Service | 160,899 | 260,888 | ||||||||
| Integration costs of acquired business (note 4) | — | 991,717 | ||||||||
| Foreign currency (gain) loss | 235,290 | (169,298 | ) | |||||||
| 5,479,609 | 5,875,451 | |||||||||
| Earnings before interest expense and income taxes | 1,678,336 | 396,111 | ||||||||
| Interest expense | (523 | ) | (56,216 | ) | ||||||
| Earnings before income taxes | 1,677,813 | 339,895 | ||||||||
| Income taxes | 626,716 | 132,559 | ||||||||
| Net earnings for the period | $ | 1,051,097 | $ | 207,336 | ||||||
| Retained earnings, beginning of period | $ | 16,643,049 | $ | 15,692,314 | ||||||
| Net earnings for the period | 1,051,097 | 207,336 | ||||||||
| Retained earnings, end of period | $ | 17,694,146 | $ | 15,899,650 | ||||||
| Earnings per share | ||||||||||
| Basic | $ | 0.14 | $ | 0.03 | ||||||
| Diluted | $ | 0.13 | $ | 0.03 | ||||||
| Weighted average number of shares | ||||||||||
| Basic | 7,588,402 | 6,160,990 | ||||||||
| Diluted | 7,810,086 | 6,668,162 | ||||||||
Table of Contents
Silent Witness Enterprises Ltd.
CANADIAN DOLLARS, PREPARED BY MANAGEMENT
| October 31, 2002 | July 31, 2002 | ||||||||
| Unaudited | |||||||||
ASSETS | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | $ | — | $ | 2,391,016 | |||||
| Accounts receivable | 12,758,522 | 12,736,269 | |||||||
| Income taxes recoverable | 889,007 | 1,024,680 | |||||||
| Inventory | 12,850,821 | 12,710,277 | |||||||
| Prepaid expenses and deposits | 2,041,519 | 1,492,205 | |||||||
| 28,539,869 | 30,354,447 | ||||||||
| Investments | 1,358,552 | 1,358,552 | |||||||
| Property, plant & equipment (net) | 4,232,061 | 4,283,758 | |||||||
| Other assets (net) | 7,290,491 | 7,782,406 | |||||||
| 12,881,104 | 13,424,716 | ||||||||
| $ | 41,420,973 | $ | 43,779,163 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
| Current liabilities | |||||||||
| Accounts payable and accrued liabilities | $ | 4,581,404 | $ | 5,081,086 | |||||
| Warranty reserve | 475,000 | 460,000 | |||||||
| Bank loan | — | 2,376,450 | |||||||
| 5,056,404 | 7,917,536 | ||||||||
| Long term liabilities | |||||||||
| Future income taxes payable | 627,086 | 368,381 | |||||||
| Total liabilities | 5,683,490 | 8,285,917 | |||||||
| 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:7,503,541 (2002: 7,646,941) (note 3) | 17,977,435 | 18,784,295 | |||||||
| Contributed surplus (note 1) | 65,902 | 65,902 | |||||||
| Retained earnings | 17,694,146 | 16,643,049 | |||||||
| 35,737,483 | 35,493,246 | ||||||||
| $ | 41,420,973 | $ | 43,779,163 | ||||||
Commitments (note 5)
Table of Contents
Silent Witness Enterprises Ltd.
CANADIAN DOLLARS, UNAUDITED, PREPARED BY MANAGEMENT
| THREE MONTHS ENDED OCTOBER 31 | |||||||||
| 2002 | 2001 | ||||||||
| Cash flows from operating activities | |||||||||
| Net earnings for the period | $ | 1,051,097 | $ | 207,336 | |||||
| Items not involving cash | |||||||||
| Amortization | 763,957 | 683,954 | |||||||
| Future income taxes | 258,705 | 110,000 | |||||||
| 2,073,759 | 1,001,290 | ||||||||
| Changes in non-cash working capital | |||||||||
| Accounts receivable | (22,253 | ) | (2,755,264 | ) | |||||
| Income taxes recoverable | 135,673 | — | |||||||
| Inventory | (140,544 | ) | (538,603 | ) | |||||
| Prepaid expenses and deposits | (549,315 | ) | (117,211 | ) | |||||
| Accounts payable and accrued liabilities | (499,680 | ) | 2,000,237 | ||||||
| Income taxes payable | — | (78,221 | ) | ||||||
| Warranty reserve | 15,000 | 20,000 | |||||||
| (1,061,119 | ) | (1,469,062 | ) | ||||||
| 1,012,640 | (467,772 | ) | |||||||
| Cash flows from investing activities | |||||||||
| Acquisition of Gyyr product lines (note 2) | — | (13,686,893 | ) | ||||||
| Purchase of other assets | — | (347,007 | ) | ||||||
| Purchase of property, plant & equipment | (220,346 | ) | (132,124 | ) | |||||
| (220,346 | ) | (14,166,024 | ) | ||||||
| Cash flows from financing activities | |||||||||
| Share repurchases | (806,860 | ) | — | ||||||
| Special warrants | — | 14,050,016 | |||||||
| Bank loan | — | 12,019,666 | |||||||
| Debt Payments | (2,376,450 | ) | (200,314 | ) | |||||
| (3,183,310 | ) | 25,869,368 | |||||||
| Net increase (decrease) in cash and cash equivalents | (2,391,016 | ) | 11,235,572 | ||||||
| Cash and cash equivalents, beginning of period | 2,391,016 | 5,569,736 | |||||||
| Cash and cash equivalents, end of period | $ | — | $ | 16,805,308 | |||||
Table of Contents
Silent Witness Enterprises Ltd.
Notes to Interim Financial Statements: Segmented disclosures
SEGMENT INFORMATION
| FOR THE THREE MONTHS | % of | % of | % of | |||||||||||||||||||||||||
| ENDED OCTOBER 31, 2002 | Mobile | Total | CCTV | Total | OEM | Total | Total | |||||||||||||||||||||
| Revenue | $ | 2,059,086 | 14 | % | $ | 12,229,554 | 80 | % | $ | 958,986 | 6 | % | $ | 15,247,626 | ||||||||||||||
| Cost of sales including sales and marketing | 1,217,863 | 12 | % | 8,349,805 | 82 | % | 651,934 | 6 | % | 10,219,601 | ||||||||||||||||||
| Segment profit | $ | 841,223 | 17 | % | $ | 3,879,749 | 77 | % | $ | 307,052 | 6 | % | $ | 5,028,025 | ||||||||||||||
| FOR THE THREE MONTHS ENDED OCTOBER 31, 2001 | ||||||||||||||||||||||||||||
| Revenue | $ | 2,599,682 | 18 | % | $ | 11,412,542 | 81 | % | $ | 122,078 | 1 | % | $ | 14,134,302 | ||||||||||||||
| Cost of sales including sales and marketing | 1,815,666 | 18 | % | 7,970,729 | 81 | % | 85,262 | 1 | % | 9,871,657 | ||||||||||||||||||
| Segment profit | $ | 784,016 | 18 | % | $ | 3,441,813 | 81 | % | $ | 36,816 | 1 | % | $ | 4,262,645 | ||||||||||||||
| FOR THE THREE MONTHS ENDED OCTOBER 31 | 2002 | 2001 | ||||||||||||||
| Revenues | $ | 15,247,626 | 100 | % | $ | 14,134,302 | 100 | % | ||||||||
| Cost of sales | 8,089,681 | 53 | % | 7,862,740 | 56 | % | ||||||||||
| Gross margin | 7,157,945 | 47 | % | 6,271,562 | 44 | % | ||||||||||
| Sales and marketing | 2,129,920 | 14 | % | 2,008,917 | 14 | % | ||||||||||
| Segment profit | $ | 5,028,025 | 33 | % | $ | 4,262,645 | 30 | % | ||||||||
GEOGRAPHIC INFORMATION
| FOR THE THREE MONTHS ENDED OCTOBER 31 | 2002 | 2001 | ||||||||||||||
| United States | $ | 11,814,258 | 77 | % | $ | 11,786,398 | 83 | % | ||||||||
| International | 2,853,680 | 19 | % | 1,970,786 | 14 | % | ||||||||||
| Canada | 579,688 | 4 | % | 377,118 | 3 | % | ||||||||||
| Segment revenues | $ | 15,247,626 | 100 | % | $ | 14,134,302 | 100 | % | ||||||||
Table of Contents
Notes to Unaudited Consolidated Financial Statements
Quarter ended October 31, 2002 (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, 2002.
1. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in preparing these interim consolidated financial statements are consistent with those used in preparing the Company’s annual consolidated financial statements for the year ended July 31, 2002 except that effective August 1, 2001, the Company adopted the new recommendations of The CICA Accounting Standard, Section 3870 — Stock-based Compensation and Other Stock-based payments. The new recommendations are applied prospectively to all stock-based payments to employees granted on or after August 1, 2001. The new recommendations are applied retroactively to all stock appreciation rights granted before August 1, 2001. The change in accounting policy resulted in an adjustment of $153,476 to the Company’s opening retained earnings and contributed surplus for fiscal 2002. In accordance with the new standard the company recorded an adjustment to contributed surplus of $87,574 to recognize the SAR’s exercised during fiscal 2002, and to reflect the SAR’s outstanding and change in market price at July 31, 2002. No compensation expense for SAR’s was recorded for the first quarter ended October 31, 2002.
As allowed by Section 3870, no compensation cost is recorded for the Company’s stock options under the Long-term Compensation Plan. Consideration paid by employees on the exercise of stock options is recorded as share capital. This policy is unchanged from that previously applied by the Company.
2. BUSINESS COMBINATIONS
Effective September 12, 2001, the Company acquired the assets of the CCTV Products Division of Gyyr, Inc. The transaction has been accounted for by the purchase method with the results of operations included in these financial statements from the date of acquisition. Details of the assets acquired and consideration given are as follows:
Net assets acquired, at assigned values:
| Inventory | $ | 5,637,172 | ||
| Property, plant and equipment | 1,842,594 | |||
| Software | 6,486,995 | |||
| Intellectual property | 1,488,562 | |||
| Accounts payable and assumed liabilities | (1,768,430 | ) | ||
| Cash consideration paid | $ | 13,686,893 | ||
3. SHARE CAPITAL
In October 2001, the Company sold 1,395,351 Special Warrants for net proceeds of $14,298,683 (net of tax). Each Special Warrant was sold for $10.75 and entitles the holder to receive, without further payment, one Common Share and one-half of a Common Share Purchase Warrant upon the exercise or deemed exercise of each Special Warrant. Each whole Common Share Purchase Warrant is exercisable for a period of 18 months from closing and entitles the holder to purchase one additional Common Share at $13.25 per share.
On December 12, 2001, the Special Warrants were converted to 1,395,351 Common Shares and 697,675 Common Share Purchase Warrants. Net proceeds were used to retire bank debt.
Table of Contents
4. BUSINESS INTEGRATION COSTS
Effective September 12, 2001, the Company entered into a 90-day transitional services agreement with Gyyr Inc. Services provided under the agreement included sales and marketing, manufacturing and inventory management, technical service, research and development and certain general and administrative functions and were charged to expense. The Company paid Gyyr Inc., the actual cost of the services performed plus a fee of US$ 400,000 per month. For the six months ended January 31, 2002, the cost of the fees plus certain integration costs, totaling $2,502,134 were charged to integration expense. Costs for the acquisition of equipment and leasehold improvements for the future production of video storage and networking products were capitalized.
5. COMMITMENTS
To accommodate growth, on October 11, 2002, the Company entered into agreements to purchase 11.9 acres of land in Surrey, British Columbia for $3,072,000. Completion of the purchases is subject to rezoning and subdivision approvals, geo-technical and environmental assessments, and other conditions. The Company is investigating the use of this site for the construction of a new facility to house its production, sales, research and development and administrative functions currently performed at its head office in Surrey.
The Company intends to investigate all the financing options for the proposed facility. The acquisition of the land is expected to be financed under the Company’s current banking facility. Leases of the Company’s current premises expire March 31, 2004.