YOUNGSVILLE, N.C., April 18 /PRNewswire-FirstCall/ -- Law Enforcement Associates Corporation (LEA) (AMEX:AID), a leading provider of surveillance and security products to the global law enforcement, military, security and corrections markets, today reported financial results for its fiscal year ended December 31, 2005. Additionally, in its 2005 10-KSB, the company has restated financial results for fiscal 2004, as well as for the 2005 interim periods ended March 31, June 30, and September 30. The 2004 comparative financial information below features the restated financial amounts.
Revenue for 2005 advanced 31% to $8.2 million from $6.2 million in 2004. Gross margin declined to 40% from 46% in the prior year as a result of upward adjustments to the costs of goods sold during the first three fiscal quarters of 2005. An explanation of these adjustments appears below under the heading "Restatement of Financial Results." Net loss for the full fiscal year was reduced to $282,000, or $0.01 per share, from $849,000, or $0.04 per share, in 2004.
For the fourth quarter, revenue was $1.5 million versus $1.8 million in the same period a year ago. The decline was attributed primarily to lower-than expected year-end customer spending. Gross margin was 40% versus 54% in the fourth quarter last year. The company reported a net loss of $196,714, or $0.01 per share, versus net income of $83,261, or less than $0.01 per share, in the fourth quarter last year.
At December 31, 2005, LEA had total current assets of $3 million, working capital of $2.2 million and a current ratio of 4:1. Long-term debt at December 31, 2005, was $40,000.
Paul Feldman, president, said, "We are encouraged by our many achievements and strong financial growth during fiscal 2005. Although fourth quarter customer spending did not live up to early expectations, it appears business has picked up nicely in the first quarter as customers are now utilizing their 2006 budgets. As we stated previously, we expect to report profitable results for the first quarter ended March 31, 2006.
"Our 2005 growth was driven primarily by growing demand for products from our AID (Audio Intelligence Devices) line, which benefited from our expanded marketing efforts and a broader domestic sales reach. These efforts are leading to a significant resurgence in demand for AID-branded products from U.S. law enforcement organizations. We also experienced continued demand for our Under Vehicle Inspection Systems (UVIS), which are now installed at hundreds of government and commercial facilities around the world.
"During the past year, we made significant progress in our R&D efforts. We introduced approximately two dozen additional products within our AID line and commenced development work on new features for the UVIS, which we believe will greatly enhance the overall value of the system. We expect to introduce these new features during an upcoming government-sponsored symposium on improvised explosive devices." Mike Wagner, chief financial officer, said, "While we are disappointed we had to restate financial results for prior periods, our ability to effectively identify and address previous reporting mistakes is indicative of the improved strength of our financial team and internal controls. Most of the adjustments we have made relate to complex transactions, including our June 2004 acquisition of assets associated with AID. In our efforts to address prior errors, we have spent the past four months working with three accounting firms, legal counsel, valuation experts and our audit committee. Our efforts included an internal review of approximately 4,000 sales transactions and hundreds of purchasing and inventory entries. We conducted this review while concurrently performing our year-end audit, and as a result, the collective process took longer than expected. Fortunately, we now believe we have now presented balance sheet and operational results that accurately reflect our financial performance for the 2004 and 2005 fiscal periods." Wagner said the company will be amending its SEC filings for the previously discussed financial periods, and expects to complete the process within the next 45 days.
Feldman said that management is more optimistic than ever about the company's long-range opportunities. "This is an important time for our industry, and we believe LEA is well equipped to address a broad range of emerging domestic and international opportunities. Moreover, we continue to be encouraged about our prospects for commercializing the MP-1, our less lethal electronic discharge weapon. We are continuing our discussions with prospective manufacturing and marketing partners, and remain encouraged by the sustained interest from potential partners and customers alike. There obviously is a great deal of attention focused on the litigation that has been directed at the industry's leading stun gun manufacturer, and this could impact the timing of our establishing a formal partnership. Of course we will keep our investors and customers apprised of developments going forward." About Law Enforcement Associates, Inc. (LEA) LEA is a leading security and surveillance technology company that manufactures and markets a diverse product line to the worldwide law enforcement, military, security and corrections markets. The company's Audio Intelligence Devices (AID) division has been serving the law enforcement sector for more than 30 years and is one of the most respected names in the surveillance equipment industry. LEA's products are used by a wide variety of government and non-governmental agencies, as well as public and private companies. These include military bases, nuclear facilities, embassies, government installations, oil refineries, United Nations and NATO locations. LEA's products also have been used at high-profile events such as the Summer & Winter Olympics, Super Bowl, U.S. Golf Championship, and the Democratic and Republican National Conventions. Its products include the Under Vehicle Inspection System (UVIS), EDK123 (Explosive Detection Kit), Bloodhound GPS Tracking System, Letter-bomb Visualizer Spray, and a wide variety of Audio & Video Surveillance Equipment. Headquartered in Youngsville, N.C., the company has been featured in many industry publications and websites. For more information, please visit http://www.leacorp.com/.
Forward-Looking Information: The statements in this news release contain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve certain risks, assumptions and uncertainties, including the inability to generate and secure the necessary product sales, or the lack of acceptance of the company's products by its customers. In each case actual results may differ materially from such forward-looking statements. The company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results (expressed or modified) will not be realized.
Consolidated Statement of Operations for the years ended December 31,
2005 and 2004 December 31, December 31,
2005 2004
REVENUES $8,157,390 $6,235,936
COST OF GOODS SOLD 4,938,120 3,400,680
Gross profit 3,219,270 2,835,256
RESEARCH AND DEVELOPMENT 182,224 274,152
SERVICES AND COMPENSATION PAID WITH STOCK 399,060 685,430
VALUE OF COMMON STOCK PUT OPTION IN
EXCESS OF ASSETS ACQUIRED 903,416
OPERATING EXPENSES 3,029,569 2,365,972
Total Operating Expenses 3,610,853 4,228,970
Net income(loss) before other income
(expenses) and provision for income taxes (391,583) (1,393,714)
OTHER INCOME (EXPENSE)
Gain (loss) on retirement of fixed assets (4,257) 30,673
Interest (expense) (15,014) (9,593)
Other (expense) (5,044) --
Total other income (expense) (24,315) 21,080
Net income(loss) before provision for
income taxes (415,898) (1,372,634)
Provision for income taxes (benefit) (134,290) (523,751)
Net income(loss) $(281,608) $(848,883)
Net income(loss) per weighted average
share, basic $(0.01) $(0.04)
Weighted average number of shares 25,127,037 21,263,455 Consolidated Statement of Operations for the three months ended December 31, 2005 and 2004 December 31, December 31,
2005 2004
REVENUES $1,539,557 $1,796,583
COST OF GOODS SOLD 930,253 816,334
Gross profit 609,304 953,249
RESEARCH AND DEVELOPMENT 56,389 139,414
TRADE NAME AMORTIZATION 14,000 14,000
DRAWINGS/DESIGNS DEPRECIATION 10,275 10,275
OPERATING EXPENSES 821,800 649,025
Total Operating Expenses 902,464 812,714
Net income(loss) before other income
(expenses) and provision for income taxes (293,160) 140,535
OTHER INCOME (EXPENSE)
Gain (loss) on retirement of fixed assets 1,517 --
Interest (expense) (2,251) (3,782)
Other (expense) 3,375 (260)
Total other income (expense) 2,641 (4,042)
Net income(loss) before provision
for income taxes (290,519) 136,493
Provision for income taxes (benefit) (93,805) 53,232
Net income (loss) $(196,714) $83,261
Net income (loss) per weighted
average share, basic $(0.01) $0.00
Weighted average number of shares 25,152,433 22,625,433 Condensed consolidated balance sheet for the years ended December 31,
2005 and 2004 December 31, December 31,
2005 2004
ASSETS
CURRENT ASSETS
Cash $778,156 $438,367
Accounts receivable (net of allowance for
doubtful accounts of $21,509) 628,825 1,053,719
Inventory 1,092,457 842,764
Deferred tax asset-current portion 213,546
Income Tax Receivable and Other
current assets 253,345 316,272
Total current assets 2,966,329 2,651,122 PROPERTY AND EQUIPMENT - net 257,539 340,398 OTHER NON-CURRENT ASSETS
Intangibles-net 2,675,860 2,770,608
Deferred tax asset-net of current portion 195,552 354,504
Deferred charges 5,528 16,234
Total non-current assets 2,876,940 3,141,346
Total assets $6,100,809 $6,132,866 LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable-current portion $120,000 $120,000
Accounts payable and accruals 609,867 571,951
Capitalized leases payable - current -- 2,251
Prepaid sales deposits 3,840 95,648
Total current liabilities 733,707 789,850 LONG TERM LIABILITIES
Note Payable-net of current portion 40,000 160,000
Deferred tax liability -- --
Total long term liabilities 40,000 160,000
Total liabilities 773,707 949,850 REDEEMABLE COMMON STOCK
2,400,000 issued, redemption value
$2,696,779, in 2004 -- 2,696,779
STOCKHOLDERS' EQUITY
Preferred stock $0.01 par value, 1,000,000
authorized, 0 issued -- --
Common stock, $0.001 par value, 50,000,000
authorized, 25,152,436 and 22,625,436
issued and outstanding at December 31,
2005 and December 31, 2004, respectively 25,152 22,625
Paid in capital in excess of par 5,240,812 2,120,866
Retained earnings 61,138 342,746
Total stockholders' equity 5,327,102 2,486,237
Total liabilities and stockholders' equity $6,100,809 $6,132,866 RESTATEMENT OF FINANCIAL RESULTS:
Restatements are for Fiscal 2004, and interim periods ended March 31,
2005, June 30, 2005, and September 30, 2005 On December 1, 2005, the company received notice of an informal inquiry by the Securities and Exchange Commission regarding the accounting treatment for the June 3, 2004, acquisition of Audio Intelligence Devices ("AID"), Inc. The company had recorded goodwill in the amount of $1,952,799 on its year-end balance sheet for December 31, 2004, along with other values for inventory and equipment. The transaction also involved a possible contingency for a "put option" to the seller of $1,080,000, which was dependent on the market price of LEA's stock on a date in the future. This transaction was complex because it had characteristics of both debt and equity given up in exchange for hard assets and intangible assets. The primary purpose for acquiring AID was the brand name and the intellectual property in the form of drawings and designs. After more than four months of discussion and review, the following conclusions were reached as of April 13, 2006: 1. Goodwill should not have been recorded because as previously reported,
this was an asset purchase, not a business purchase.
2. The company had to determine a fair value for all assets
purchased -- Inventory, Equipment, Drawings/Designs and the Trade Name. Specifically, LEA has now determined that the fair values of the
drawings/designs and trade name are $411,000 and $1,400,000,
respectively. The useful lives for amortization are 10 years and 25
years, respectively.
3. A present value of the contingent "put option" of $1,080,000 and the
fair value of the common stock at acquisition date ($1,920,000) needed
to be included in the purchase price of assets as long as a possibility
of redemption existed. The proper Balance Sheet classification is to
record the present value amount at each reporting date in the mezzanine
section between liabilities and equity as Redeemable Common Stock. In
August of 2005 when the "put option" was not exercised the value of the
Redeemable Common Stock is reclassified to permanent equity.
4. Per EITF D-98 when we added the amount for the "put option" to the
purchase price, the consideration given by us exceeded the fair value
of assets received by $903,416. This amount increased our operating
expenses for the quarter ended June 30, 2004 and the year to date
amounts for September 30, 2004 and the year-end amount for 2004.
The above items are explained in more detail in Footnote 8 of our 2005 10-K Financial Statements under the heading "ASSET PURCHASE AGREEMENT." In our year-end review we also became aware of an issue related to revenue recognition for the quarters ended March 31, 2005 and June 30, 2005. Securities and Exchange Commission Staff Accounting Bulletin ("SAB") 101, Revenue Recognition, as amended by SAB 104, outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. We discovered upon review that on a large government contract that shipped in the quarters mentioned above that our revenue recognition policy did not conform to SAB 104 as we recorded revenue at gross sales versus a fee for commissions.
We evaluated the criteria of the FASB Emerging Issues Task Force ("EITF") 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent, in determining whether it was appropriate to record the gross amount of revenue and related costs or the net amount earned as commissions. We did not act as the primary obligor and we did not pass title, we were not subject to inventory risk, we did not establish prices, select suppliers, establish product specifications, and we had no risk of loss as it relates to the ultimate collection of accounts receivable. We mainly acted as an agent for a commission.
The above item is explained in more detail in our footnotes in the section of restatements for the first two quarters of 2005.
Also during our year-end review we discovered two issues in the quarter ended March 31, 2005 related to the recording of training revenue and accrual of inventory related purchases. The first issue involved the recording of $50,000 of training revenue that should have been recorded as deferred revenue until the service was provided. It was later determined in the quarter ended December 31, 2005 that training would not be provided and this revenue needed to be reversed. We have made the adjustment to reverse the revenue from the quarter ended March 31, 2005. We have also implemented procedures in our billing department to properly record training to be provided as deferred revenue. The second issue related to $124,770 of raw material inventory purchases that were booked in the quarter ended June 30, 2005, instead of being accrued in the quarter ended March 31, 2005. We were in the process of converting to a purchasing system that integrated with our accounts payable system and these purchases were inadvertently booked in the second quarter. Our purchasing system was totally integrated at the quarter ended June 30, 2005 and we are properly accruing expenses to the proper time period. These items have also been reflected in our footnotes in the section of restatements for the first two quarters. These items did not impact the year-end results.
All of the above have been discussed with our auditors and our audit committee and we will be restating the above adjustments by amending all previous filings for the appropriate time periods as we reported in our Form 8-K.
Summary restatement of fiscal 2004 results
Note:
The following tables present only those items that were impacted by the
restatements. Please see the company's Form 10-K filed April 17, 2006,
for detailed explanations of these restatements.
Statement of Operations: For the Year Ended
December 31, 2004 As Previously
Reported As Restated +/(-)
Cost Of Goods Sold $3,314,555 $3,400,680 $86,125
GROSS PROFIT 2,921,381 2,835,256 (86,125)
Research And Development 148,194 274,152 125,958
Aid Put Option In Excess
Of Assets Acquired 903,416 903,416
Operating Expenses 2,395,456 2,365,972 (29,484)
TOTAL OPERATING EXPENSES 3,229,080 4,228,970 999,890
OPERATING (LOSS) (307,699) (1,393,714) (1,086,015)
NET (LOSS) BEFORE PROVISION
FOR TAXES (286,619) (1,372,634) (1,086,015)
Provision For Income Taxes (109,453) (523,751) (414,298)
NET INCOME (LOSS) $(177,166) $(848,883) $(671,717)
Net Income (Loss) Per Weighted
Average Share, Basic $(0.01) $(0.04) $(0.03) Balance Sheet: For the Year Ended
December 31, 2004 As Previously
Reported As Restated +/(-)
Income Tax Receivable
And Other Current Assets $283,688 $316,272 $32,584
TOTAL CURRENT ASSETS 2,618,538 2,651,122 32,584
Property & Equipment - Net 340,398 727,423 387,025
Goodwill 1,952,799 (1,952,799)
Trade Name 1,367,333 1,367,333
Deferred Tax Asset 354,504 354,504
Deferred Charges 125,958 16,234 (109,724)
TOTAL NON-CURRENT ASSETS 3,095,007 2,754,321 (340,686)
TOTAL ASSETS 6,053,943 6,132,866 78,923
Note Payable-Current Portion 109,293 120,000 10,707
TOTAL CURRENT LIABILITIES 779,143 789,850 10,707
Note Payable-Net Of
Current Portion 154,473 160,000 5,527
Deferred Tax Liability 27,211 (27,211)
TOTAL LONG TERM LIABILITIES 181,684 160,000 (21,684)
TOTAL LIABILITIES 960,827 949,850 (10,977)
Redeemable Common Stock
(2,400,000 Shares) 2,696,779 2,696,779
Common Stock (Prev-25,025,433
Restated-22,625,433) 25,025 22,625 (2,400)
Paid In Capital In Excess
Of Par (APIC) 4,038,466 2,120,866 (1,917,600)
Retained Earnings 1,029,625 342,746 (686,879)
TOTAL STOCKHOLDERS' EQUITY 5,093,116 2,486,237 (2,606,879)
TOTAL LIABILITIES AND
S/H EQUITY $6,053,943 $6,132,866 $78,923 Summary restatement of first quarter 2005 results For the Quarter Ended
March 31, 2005 As Previously
Reported As Restated +/(-)
Revenues $2,598,897 $2,410,721 $(188,176)
Cost Of Goods Sold 1,297,463 1,448,228 150,765
GROSS PROFIT (As Reported
50.1%/Restated 39.9%) 1,301,434 962,493 (338,941)
Operating Expenses 733,944 732,224 (1,720)
TOTAL OPERATING EXPENSES 1,164,119 1,162,399 (1,720)
NET INCOME(LOSS) BEFORE
PROVISION FOR TAX 129,312 (207,909) (337,221)
Provision For Income Taxes 54,000 (67,135) (121,135)
Net Income (Loss) $75,312 $(140,774) $(216,086)
Net Income (Loss) Per Weighted
Average Share, Basic $0.00 $(0.01) $(0.01)
Weighted Average Number
Of Shares 25,089,633 25,089,633 25,089,633 Summary restatement of second quarter 2005 results For the Quarter Ended
June 30, 2005 As Previously
Reported As Restated +/(-)
Revenues $1,918,283 $1,545,470 $(372,813)
Cost Of Goods Sold 1,645,916 1,059,881 (586,035)
GROSS PROFIT (As Reported
14.2%/Restated 31.4%) 272,367 485,589 213,222
Research And Development (49,850) 47,030 96,880
Operating Expenses 605,511 604,124 (1,387)
TOTAL OPERATING EXPENSES 582,661 678,154 95,493
NET INCOME(LOSS) BEFORE
PROVISION FOR TAX (313,544) (195,816) 117,728
Provision For Income Taxes (126,000) (63,230) 62,770
Net Income (Loss) $(187,544) $(132,586) $54,958
Net Income (Loss) Per Weighted
Average Share, Basic $(0.01) $(0.01) $0.00
Weighted Average Number
Of Shares 25,144,433 25,144,433 25,144,433 Summary restatement of third quarter 2005 results For the Quarter Ended
September 30, 2005 As Previously
Reported As Restated +/(-)
Cost Of Goods Sold $1,551,413 $1,499,758 (51,655)
GROSS PROFIT (As Reported
41.7%/Restated 43.7%) 110,229 1,161,884 1,051,655
Operating Expenses 771,215 847,145 75,930
NET INCOME(LOSS) BEFORE
PROVISION FOR TAX 302,621 278,346 (24,275)
Provision For Income Taxes 118,000 89,880 (28,120)
Net Income (Loss) $184,621 $188,466 $3,845
Net Income (Loss) Per Weighted
Average Share, Basic $0.01 $0.01 $0.00
Weighted Average Number
Of Shares 25,152,433 25,152,433 25,152,433
DATASOURCE: Law Enforcement Associates Corporation CONTACT: Geoff High of Pfeiffer High Investor Relations, Inc., +1-303-393-7044, for Law Enforcement Associates Corporation Web site: http://www.leacorp.com/
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