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 MAY 31, 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)
(516) 328-3300
(Issuer's telephone number)
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 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 90 days. YES X NO .
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding at June 30, 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 5 Other Events 8
Item 6. Exhibits and Reports on Form 8-K 8
PART I FINANCIAL INFORMATION
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
May 31, August 31,
1995 1994
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash $ 223 $ 266
Accounts receivable-net 4,057 3,295
Inventories (Lower of cost or 8,909 8,209
market, FIFO basis)
Deferred income taxes 778 789
Prepaid expenses 290 261
Total current assets 14,257 12,820
Property, plant and equipment-net 1,355 1,506
Other assets 323 323
Total Assets $ 15,935 $ 14,649
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 1,296 715
Accrued liabilities 1,389 1,575
Accrued severance costs 143 422
Income tax payable 124 284
Total current liabilities 2,952 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 3,594 2,267
Less: Treasury Stock (231) (231)
Total shareholders' equity 12,884 11,557
Total Liabilities and $ 15,935 $ 14,649
Shareholders' Equity
DESIGNATRONICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands Except Share and per Share Data)
Three Months Ended Nine Months Ended
May 31, May 31,
1995 1994 1994
Net sales $ 8,057 $ 6,889 $21,266 $18,652
Cost of sales 4,668 4,294 12,968 11,816
Gross Profit 3,389 2,595 8,298 6,836
Selling, general and 2,391 1,874 6,320 5,365
administrative expenses
Income from operations 998 721 1,978 1,471
Other expenses/(income)
Interest income 4 - 5 -
Interest expense - 9 - 39
Sundry (59) (40) (145) (141)
Income before provision for 1,061 752 2,128 1,573
income taxes
Provision for income taxes 397 281 801 591
Net Income $ 664 $ 471 $ 1,327 $ 982
Income per common share:
Net Income $0.23 $0.16 $0.46 $0.34
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
Nine Months Ended
May 31,
1995 1994
Cash flow from operating activities:
Net Income $ 1,327 $ 982
Adjustments to reconcile net
income/(loss) to net cash
provided/(used) by operating
activities:
Depreciation and Amortization 350 348
Increase in accounts receivable (762) (744)
(Increase)/decrease in inventories (700) 3
Gain on sale of fixed assets (2)
Decrease in deferred taxes 11 1
Increase in prepaid expenses (29) (165)
Increase/(decrease) in accounts 581 (122)
payable
Decrease in accrued expenses (346) (197)
Accrued restructuring and severance (279) (783)
costs
Total adjustments (1,174) (1,661)
Net cash provided/(used) by operations 153 (679)
Cash flows from investing activities
Expenditures for fixed assets (205) (118)
Proceeds from sale of fixed assets 6 18
Increase in other assets (2)
Net cash (used) in investing (199) (102)
activities
Cash flows from financing activities
Increase in cash overdraft 238
Proceeds of long term debt 200
Other 3 2
Net cash provided by financing 3 440
activities
Net Decrease in cash (43) (341)
Cash and cash equivalents at beginning 266 341
of period
Cash and cash equivalents at end of 223 $ 0
period
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest $ 0 $ 117
Income taxes $ 961 $ 782
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 May 31, 1995, and the results of its operations
and cash flows for the three and nine month periods ended May 31,
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 nine month period ended May
31, 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):
May 31 August 31,
1995 1994
Raw materials $ 940 $ 940
Work in process 567 532
Finished goods 7,402 6,737
Total $8,909 $8,209
Inventories
4. Earnings per share are based on earnings for each period
divided by the weighted average number of shares outstanding
during such period. The effect of outstanding stock options was
not material.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
(a) Sales
Net sales increased 17.0% for the third quarter period ended May
31, 1995, and 14.0% on a year-to-date basis as compared to the
respective prior year periods. Sales for the Mechanical Component
segment increased 14.0% to $6,767,000, in the third quarter, and
15.6% to $18,105,000, on a year-to-date basis, as compared to the
fiscal 1994 figures. This continued increase in sales shows the
positive effects of the Company's' combined catalog library and
its continued expansion of the customer base. Sales for the
Automation Components segment increased 35.0% to $1,290,000 in
the third quarter, and 5.5%, to $3,161,000, on a year-to-date
basis, as compared to the fiscal 1994 figures. The current
quarter increase in Automation Components sales reflects the new
marketing approach which was developed by the company in the
first quarter of the current fiscal year.
Export sales, for the third quarter, increased 11% to $673,000,
and 2.5% on a year-to-date basis, to $1,777,000, as compared to
the prior year figures.
(b) Gross Profit Margins
The Company's consolidated gross profit margin for the third
quarter and year-to-date periods ended May 31, 1995 were 42.1%
and 39.0%, as compared to the prior year figures of 37.7% and
36.7% respectively. The gross profit margin for the Mechanical
Components segment increased to 39.0% for the year-to-date period
compared to 35.7% in fiscal 1994. The increased gross profit
margin for the mechanical component segment was due to a more
favorable product mix. The gross profit margin for the Automation
Components segment decreased to 39.4% as compared to 41.8% 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 29.7% for the current quarter and year-to-date basis,
as compared to 27.2% and 28.8% for the respective prior year
periods.
(d) Income Taxes
The effective tax rate for the third quarter and year to date
periods ended May 31, 1995, were unchanged at 37.4 and 37.6% as
compared to the prior year periods, respectively.
Financial Condition
The Company's working capital position as of May 31, 1995 was
$11,305,000 as compared to $9,824,000 as of the year ended August
31, 1994. The current ratio at May 31, 1995 is 4.8:1 and was
4.3:1 at August 31, 1994.
Net cash provided by operations was $153,000 for the year-to-date
period ended May 31, 1995. The major uses of cash were: 1)
payments due under severance contracts of $297,000, 2) the
increase in accounts receivable of $762,000, 3) the decrease in
accrued expenses of $579,000 and 4) the increase in inventory of
$700,000. The total use of cash was partially offset by cash
provided from an increase in accounts payable of $581,000.
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 May 31, 1995, there was no balance outstanding.
The Company estimates capital expenditures will not exceed
$750,000 in the current fiscal year and does not have any
material commitments beyond August 31, 1995.
PART II
OTHER INFORMATION
Item 5. Other Events
On June 5, 1995, Designatronics Incorporated (the "Company")
entered into a letter of intent with Dyson, Dyson & Dunn, Inc.
(DD&D). The letter of intent outlines certain basic terms
pursuant to which DD&D, or a Delaware corporation to be formed by
DD&D ("Purchaser"), will acquire all of the outstanding stock of
the Company. Purchaser would form a New York corporation (the
"Merger Company") to be merged into the Company. As a result of
the merger, Purchaser as the sole shareholder of the Merger
Company, would acquire all of the stock of the Company and each
shareholder of the Company would receive $6.00 per share in cash.
The letter of intent is non-binding and is subject to the entry
of a mutually acceptable definitive Agreement and Plan of Merger
and other conditions.
Item 6. Exhibits and Reports on Form 8-K
a) 10.9 The Letter of Intent between DD&D and the Company
dated June 5, 1995, is incorporated by reference to the Form 8-K
stated below.
b) On June 13, 1995, a Form 8-K was filed with respect to
Item 5, Other Events, which described the prospective merger
stated above.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
DESIGNATRONICS INCORPORATED
Date: July 6, 1995 SS: Martin Hoffman
Martin Hoffman, President,
Chief Executive Officer
and Chief Financial
Officer
Date: July 6, 1995 SS: Frank Buchsbaum
Frank Buchsbaum, Exec.
Vice President