SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from __________ to__________
Commission File No. 005-62411
Diversified Security Solutions, Inc.
(Name of small business issuer as specified in its charter)
Delaware 22-3690168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 Midland Avenue
Saddle Brook, New Jersey 07663
(address of principal executive offices) (Zip Code)
Issuer's Telephone number, including area code: (201) 794-6500
Check whether 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 issuer was required to file such reports), and (2 ) has been
subject to such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at March 31, 2002
Common stock, $.01 par value 4,725,000
Diversified Security Solutions, Inc. and Subsidiaries
INDEX
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance sheets as of March 31, 2002 (Unaudited) 3
Consolidated Statement of Operations for the three months ended
March 31, 2002 (Unaudited) and March 31, 2001 (Unaudited) 4
Consolidated Statement of Cash Flows for the three months ended
March 31, 2002 (Unaudited) and March 31, 2001 (Unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 6
Part II Other Information 9
Signatures 9
2
Diversified Security Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
As of
March 31, December 31,
2002 2001
Assets (Unaudited) (Audited)
Current assets
Cash and cash equivalent $8,619,560 $8,914,473
Accounts receivable - net 4,536,058 4,142,335
Securities held to maturity 802,235
Inventory 1,321,537 1,239,362
Costs in excess of billings 156,880 298,879
Deferred tax assets 88,000 88,000
Other assets 297,967 102,671
Total current assets 15,020,002 15,587,955
Property and equipment 1,402,311 1,355,184
Accumulated depreciation (953,722) (882,222)
Computer software products cost 613,812 613,812
Accumulated amortization (439,374) (429,374)
Other assets 277,633 56,163
$15,920,662 $16,301,518
Current liabilities
Accounts payable $294,894 $1,192,882
Accrued taxes & expenses 398,094 456,374
Income tax payable 26,000 16,000
Billings in excess of cost 136,790 191,254
Long-term debt current 38,605 38,605
Capitalized leases current 7,753 10,642
Customer Deposits 871,917 293,289
Total current liabilities 1,774,053 2,199,046
Long- term debt, less current 2,883,914 2,897,005
Deferred tax liability 103,000 103,000
4,760,967 5,199,051
Stockholders' equity:
Preferred stock - par value $.01
Common stock 47,250 47,250
Additional paid in capital 10,209,814 10,209,814
Deferred compensation (15,626) (20,834)
Retained earnings 918,257 866,237
Total shareholders' equity 11,159,695 11,102,467
$15,920,662 $16,301,518
3
Diversified Security Solutions, Inc. and
Subsidiaries
Consolidated Statements of Operations
Three months ended
March 31,
2,002 2,001
(UNAUDITED)
Sales $3,179,384 $3,715,376
Cost of sales 1,891,344 2,303,440
Gross profit 1,288,040 1,411,936
Operating expenses 1,212,966 1,082,614
Operating Income 75,074 329,322
Interest :
Income (28,996) 0
Expense 38,847 40,653
Income before income taxes 65,223 288,669
Provision for income taxes 26,000 115,000
Net income $39,223 $173,669
Basic and diluted earnings per share:
Basic earnings per common share $0.01 $0.06
Weighted average common share 4,725,000 3,000,000
Diluted earnings per common share $0.01 $0.06
Weighted average diluted shares outstanding 4,800,000 3,075,000
4
Diversified Security Solutions Inc and Subsidiaries
Consolidated Statement of Cash Flows
For Three Months Ended
March 31,
2,002 2,001
Unaudited
Cash Flows from Operating Activities:
Net income for the quarter $39,223 $173,669
Adjustments to reconcile net income to net cash used in
operating activities;
Amortization of stock based compensation 5,208 5,208
Depreciation and amortization 81,500 40,000
Changes in operating assets and liabilities;
Accounts receivable (393,723) (758,037)
Inventory (82,175) 266,521
Cost & Profit in excess of billing 141,999
Other assets (416,766) (1,086)
Accounts payable (897,988) (302,072)
Accrued taxes and expenses (48,280) (273,539)
Billing in excess of cost (54,464)
Other liabilities (2,889)
Customer deposits held 578,628 16,818
Net cash used in operating activities (1,049,727) (832,518)
Cash Flows from Investing Activities;
Security held to maturity, matured 802,235
Computer software development costs (22,000)
Purchase of property and equipment and leasehold improv. (47,127) (70,567)
Cash provided by (used in) investing activities 755,108 (92,567)
Cash Flows from Financing activities
Proceeds of bank credit lines 418,563
Discontinued operation 12,797
Capitalized lease obligation payments (13,091) (6,334)
Cash provided by (used in) Financing activities (294) 412,229
Net cash decrease (294,913) (512,856)
Cash and cash equivalents -beginning 8,914,473 567,567
Cash and cash equivalents -ending $8,619,560 $54,711
5
Notes to Financial Statements
Note 1. Basis of Presentation
The financial information provided herein was prepared from the books and
records of the Company without audit. The information furnished reflects all
normal recurring adjustments, which, in the opinion of the Company, are
necessary for a fair statement of the balance sheets, statement of operations,
and statement of cash flows, as of the dates and for the Diversified Security
Solutions, Inc. periods presented. The Notes to Financial Statements included in
the Company's 2001 Annual Reports on Form 10-KSB should read in conjunction with
these financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(a) Overview
We are a single source/turn-key provider of technology-based
integrated security solutions for commercial enterprises and governmental
agencies. Our two operating divisions are integration and manufacturing which
focus on the electronic security of the security industry. We provide services,
which include:
o consulting and planning;
o engineering and design;
o systems integration and
o maintenance and technical support.
As a security integrator, we design, customize, install, connect
and maintain Closed Circuit TV and access control systems for customers in the
private and public sectors under the trade names, HBE and Henry Bros.
Electronics. As part of an access control system, we may also install, maintain
and monitor intrusion alarms and monitor alarms for building maintenance systems
and fire alarm systems.
We also manufacture, develop and assemble various related
products, which we use in our own installations and for sales to other
integrators under the trade name Viscom Products.
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(b) Results of Operations
Comparison of the three months ended March 31, 2002 to the three months ended
March 31, 2001.
Revenues. Revenues for the quarter ended March 31, 2002 totaled $3,179,384
representing a decrease of 14.4% or $535,992 from $3,715,376 reported for the
same quarter a year ago. Revenues decreased primarily due to customer delays in
releasing orders from existing backlog.
Cost of Goods Sold. Cost of Goods Sold decreased to $1,891,344 or 59.5% of
revenues for the quarter ended March 31, 2002, from $2,303,440 or 62.0% of
revenues for the quarter ended March 31, 2001. This reduction was attributed to
a combination of a reduction in sales, as well as our more efficiently
purchasing material and our using our labor in a more efficient manner.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses increased to $1,212,966 for the quarter ended March 31,
2002 from $1,082,614 for the same quarter a year ago a 12.0% increase or
$130,352. The increase in expenses was due to the hiring of additional employees
in anticipation of an expected increase in the demand for our services.
Operating Income. Operating Income for the quarter ended March 31, 2002
totaled $75,074 representing a decrease of 77.2% or $254,248 from $329,322 for
the same quarter a year ago.
Interest Expense - net. Interest Expenses net of Interest Income for the
three months ended March 31, 2002 was $9,851 or .3% as a percentage of revenue
compared to $40,653 or 1.1% for the comparable period a year ago. The savings
were caused by less bank borrowing and $28,996 in interest income from short
term investment of the balance of the proceeds of the initial public offering on
November 15, 2001.
Net Income. For the Quarter ended March 31, 2002 our net income totaled
$39,223 or 1.2% of revenues, as compared to net income of $173,669, or 4.7% of
revenues, for the Quarter ended March 31, 2001. This resulted in basic earnings
per share of $0.01 on 4,725,000 basic weighted average common share outstanding
for the quarter ended March 31, 2002 compared with $0.06 per share on 3,000,000
basic weighted average common shares outstanding for the quarter ended March 31,
2001.
(c) Liquidity and Capital Resources
Since our inception, we have financed our operations through bank debt,
loans and equity from our principals, loans from third parties and funds
generated by our business. On November 15, 2001, the Securities and Exchange
Commission declared effective our registration statement pertaining to our
initial public offering of 1,500,000 shares of our common stock. The public
offering price of this offering was $7.00 per share, and we received net
proceeds of approximately $8,613,014, after deducting the underwriter's discount
of $1,050,000 and offering expenses of $836,986.In December, 2001, GunnAllen
Financial, Inc., the managing underwriter of our initial public offering,
exercised its over-allotment option to purchase an additional 225,000 shares of
common stock and we received net proceeds of $1,370,250. As of March 31, 2002,
we had $8,619,560 in cash and cash equivalents.
Net cash Used in Operating Activities. Net cash used in operating
activities amounted to $1,049,727 for the three months ended March 31, 2002 as
compared to $832,518 during the same period a year ago.
Net cash provided by investing activities. Net cash provided by investing
activities increased to $755,108 for the first Quarter of 2002 as compared to a
decrease of $92,567 for the same period a year ago.
Net cash used by financing activities amounted to $294 for the first
quarter of 2002 as compared to net cash provided by financing activities
amounted to $412,229 for the same period a year ago.
7
Our capital requirements have grown substantially since our inception with
the growth of our operations and staffing. We expect our capital requirements to
continue to increase in the future as we seek to expand our operations. We
believe that our current cash and available lines of credit should be sufficient
to meet our capital requirements.
(d) Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 Business Combinations and Statement No. 142 Goodwill and other
Intangible Assets. These statements are effective July 1, 2001 for business
combinations completed on or after that date. These statements became effective
for us on January 1, 2002 with respect to business combinations completed on or
before June 30, 2001.
(e) Forward Looking Statements
The foregoing contains certain forward-looking statements. Due to the fact
that we face intense competition in a business characterized by changing
technology and high capital requirements, actual results and outcomes may differ
materially from any such forward looking statements and, in general, are
difficult to forecast.
8
Part II Other Information - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 2002
DIVERSIFIED SECURITY SOLUTIONS, INC.
By: /s/ James E. Henry
-----------------------------------
James E. Henry
Chairman and Chief Executive Officer
By: /s/ Irvin F. Witcosky
-----------------------------------
Irvin F. Witcosky
President and Chief Operating Officer
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