SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1995
COMMISSION FILE #0-2931
DESIGNATRONICS INCORPORATED
(Exact name of small business issuer as specified in its charter)
NEW YORK 11-1972961
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
2101 JERICHO TPKE., NEW HYDE PARK, NY 11040
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (516) 328-3300
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 and 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 such
filing requirements for the past ninety days. YES X NO.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 15, 1995
Common Stock, par value 2,873,423 (Excluding 112,088
$.04 per share shares held as treasury).
DESIGNATRONICS INCORPORATED
TABLE OF CONTENTS
Part I Financial Information: Page No.
Item 1 Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of the
Financial Condition and Results of Operations 7
Part II Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 9
PART I FINANCIAL INFORMATION
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
[CAPTION]
February 28, August 31,
1995 1994
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash $ 143 $ 266
Accounts receivable-net 3,643 3,295
Inventories (Lower of cost or 8,243 8,209
market, FIFO basis)
Deferred income taxes 772 789
Prepaid expenses 287 261
Total current assets 13,088 12,820
Property, plant and equipment-net 1,439 1,506
Other assets 324 261
Total Assets $ 14,851 $ 14,649
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 1,160 715
Accrued liabilities 1,260 1,575
Accrued severance costs 109 422
Income tax payable 3 284
Total current liabilities 2,532 2,996
Deferred income taxes 82 82
Other liabilities 17 14
Shareholders' Equity:
Common stock $.04 par value 119 119
Additional paid-in-capital 9,402 9,402
Retained Earnings 2,930 2,267
Less: Treasury Stock (231) (231)
Total shareholders' equity 12,220 11,557
Total Liabilities and $ 14,851 $ 14,649
Shareholders' Equity
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands Except Share and per Share Data)
[CAPTION]
Three Months Ended Six Months Ended
February 28, February 28,
1995 1994 1995 1994
Net sales $ 6,722 $ 5,906 $ 13,209 $ 11,763
Cost of sales 4,118 3,738 8,300 7,522
Gross Profit 2,604 2,168 4,909 4,241
Selling, general and 2,043 1,740 3,929 3,472
administrative expenses
Income from operations 561 428 980 769
Other expenses/(income)
Interest income - - 1 -
Interest expense - 13 - 30
Sundry (52) (55) (86) (82)
Income before provision for 613 470 1,067 821
income taxes
Provision for income taxes 235 180 404 310
Net Income $ 378 $ 290 $ 663 $ 511
Income per common share:
Net Income $0.13 $0.10 $0.23 $0.18
Weighted number of shares 2,873,423 2,873,438 2,873,423 2,873,438
outstanding (Note 4)
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
[CAPTION]
Six Months Ended
February 28,
1995 1994
Cash flow from operating activities:
Net Income $ 663 $ 511
Adjustments to reconcile net income to
net cash provided/used by operating
activities:
Depreciation and amortization 229 231
Increase in accounts receivable (348) (473)
(Increase)/decrease in inventories (34) 172
Gain on sale of fixed assets (1)
Decrease in deferred taxes 17 9
(Increase) in prepaid expenses (26) (91)
Increase/(decrease) in accounts 445 (112)
payable
(Decrease) in accrued expenses (596) (396)
Accrued restructuring and severance (313) (723)
costs
Total adjustments (626) (1,384)
Net cash provided/(used) by operations 37 (873)
Cash flows from investing activities
Expenditures for fixed assets (162) (110)
Proceeds from sale of fixed assets 18
Increase in other assets (1) (2)
Net cash (used)/provided in investing (163) (94)
activities
Cash flows from financing activities
Increase/(decrease) in cash 49
overdraft
Proceeds from/(reduction) of long 575
term debt
Other 3 2
Net cash provided/(used) by financing 3 626
activities
Net (Decrease)/increase in cash (123) (341)
Cash and cash equivalents at beginning 266 341
of period
Cash and cash equivalents at end of $ 143 $ 0
period
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest $ 0 $ 108
Income taxes $ 669 $ 718
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring items) necessary
to present fairly the financial position of Designatronics
Incorporated at February 28, 1995, and the results of its
operations and cash flows for the three and six month periods
ended February 28, 1995, and 1994. It is suggested that these
condensed statements be read in conjunction with the financial
statements and the notes included in the Company's latest annual
report, on Form 10-KSB, for the year ended August 31, 1994.
2. The results of operations for the six month period ended
February 28, 1995 are not necessarily indicative of the results
to be expected for the full year.
3. Inventories consist of the following (in thousands of
dollars):
February 28 August 31,
1995 1994
Raw materials $ 940 $ 940
Work in process 557 532
Finished goods 6,746 6,737
Total Inventories $8,243 $8,209
4. Earnings per share are based on earnings for each period
divided by the weighted average number of shares outstanding
during such period.
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
(a) Sales
Net sales increased 13.8% for the second quarter ended February
28, 1995 and 12.3% on a year-to-date basis, as compared to the
respective prior year periods. Sales for the Mechanical Component
segment increased 16.4% to $5,757,000, in the second quarter, and
16.6% to $11,338,000, on a year-to-date basis, as compared to the
fiscal 1994 figures. This continued increase in sales shows the
positive effects of the Companys' combined catalog library and
its continued expansion of its customer base. Sales for the
Automation Components segment decreased 1% to $965,000 in the
second quarter, and 8.2%, to $1,871,000, on a year-to-date basis,
as compared to the fiscal 1994 figures. The Company does not see
this decrease as being a trend as the backlog for the Automation
component segment has increased 10% from fiscal year-end August
31, 1994.
Export sales, for the second quarter, decreased 10% to $500,000,
and 2% on a year-to-date basis, to $1,104,000 as compared to the
prior year figures. The Company does not believe that the current
quarter decrease constitutes a trend.
(b) Gross Profit Margins
The Company's consolidated gross profit margin for the second
quarter and year-to-date periods ended February 28, 1995 were
38.7% and 37.2%, as compared to the prior year figures of 36.7%
and 36.1% respectively. The gross profit margin for the
Mechanical Components segment increased to 36.5% for the year-to-
date period compared to 34.6% in fiscal 1994. The gross profit
margin for the Automation Components segment decreased to 41.2%
as compared to 42.8% in the prior year. This change can be
attributed to the increased import costs due to the decreased
value of the dollar oversees.
(c) Selling, General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of
sales, were 30.4% in the current quarter and 29.7% on a year-to-
date basis as of February 28, 1995, as compared to 29.5% for both
the quarter and year-to-date periods in fiscal 1994. The current
quarter increase reflects the Company's expansion of its efforts
in the marketing and advertising areas.
(d) Income Taxes
The effective tax rate for the year to date period ended February
28, 1995 was 37.9% compared to an effective tax rate of 37.8% for
the same period last year.
Financial Condition
The Company's working capital position as of February 28, 1995
was $10,556,000 as compared to $9,824,000 as of the year ended
August 31, 1994. The current ratio at February 28, 1995 is 5.2:1
and was 4.3:1 at August 31, 1994.
Net cash provided by operations was $37,000 for the year-to-date
period ended February 28, 1995. The major uses of cash were: 1)
payments due under severance contracts of $297,000, 2) the
increase in accounts receivable of $348,000, and 3) the decrease
in accrued expenses of $579,000. The total use of cash was
partially offset by cash provided from an increase in accounts
payable of $445,000.
The Company continues to retain Ernst & Young, one of the
country's leading accounting and financial services companies, as
financial advisors to assist the Company in exploring ways to
enhance shareholder value, including the possible sale of the
company. In addition, the Board of Directors has authorized the
purchase of an unspecified amount of Designatronics' stock in
accordance with rule 10b-18 of the Securities and Exchange Act of
1934 as amended, and subject to the annual $200,000 repurchase
limitation imposed by the Company's bank agreement. There have
been no stock purchases as of the date of this filing.
The Company has a $5,000,000 three year revolving loan facility
with European American Bank which expires on November 8, 1996,
and is renewable for an additional year at the Company's option.
As of February 28, 1995, there was no balance outstanding.
The Company estimates capital expenditures will not exceed
$500,000 in the current fiscal year and does not have any
material commitments beyond August 31, 1995.
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders of the company took
place on January 11, 1995.
(b) Martin Hoffman, Dr. Frank Buchsbaum, Sol Schwartz and
Joseph Rubenfeld were re-elected as directors. The
voting for Directors was as follows;
FOR WITHHELD
Martin Hoffman 2,657,779 4,010
Dr. Frank Buchsbaum 2,657,779 4,010
Sol Schwartz 2,657,779 4,010
Joseph Rubenfeld 2,657,779 4,010
(c) The following matters were approved at the annual
meeting by the votes as indicated:
Cornick, Garber & Sandler, LLP, Certified Public
Accountants, as independent auditors
FOR 2,656,531 AGAINST 2,877 ABSTAIN 2,388
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
DESIGNATRONICS INCORPORATED
Date: March 23, 1995 SS: Martin Hoffman
Martin Hoffman, President,
Chief Executive Officer
and Chief Financial
Officer