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 quarter ended September 30, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
Commission File No. 05-62411
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
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act of 1934, as amended,
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 November 7, 2002:
Common stock, $.01 par 5,138,357
1
Diversified Security Solutions, Inc. and Subsidiaries
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 3
Consolidated Balance Sheets as of December 31, 2001 (Audited) and
September 30, 2002 (Unaudited) 3
Consolidated Statements of Operations for the nine and three months ended
September 30, 2002 (Unaudited) and September 30, 2001 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2002 (Unaudited) and September 30, 2001 (Unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
Item 3. Controls and Procedures 11
PART II OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Changes in Security 12
Item 3. Default upon Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports 13
SIGNATURES AND CERTIFICATIONS 13
INDEX TO EXHIBITS
2
Diversified Security Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, December 31,
2002 2001
(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalent $ 5,213,865 $ 8,914,473
Accounts receivable - net 5,589,759 4,142,335
Note receivable 500,000 0
Securities held to maturity 0 802,235
Inventory 2,103,883 1,239,362
Costs in excess of billing 196,850 298,879
Deferred tax assets 112,000 88,000
Other assets 384,617 102,671
TOTAL CURRENT ASSETS 14,100,974 15,587,955
Property and equipment, net of depreciation of $1,301,414 and $888,222 902,813 472,962
Computer software product cost, net of amortization of $449,374 and $429,374 184,438 184,438
Goodwill 2,055,000 0
Other Intangible - net 1,080,000 0
Other assets 214,319 56,163
$18,537,544 $16,301,518
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 995,432 $ 1,192,882
Accrued taxes and expenses 343,741 456,374
Income taxes payable 182,000 16,000
Billing in excess of cost 111,240 191,254
Long-term debt current 0 38,605
Capitalized leases current 1,076 10,642
Customer deposits 306,867 293,289
TOTAL CURRENT LIABILITIES 1,940,356 2,199,046
Long-term debt, less current 2,105,371 2,897,005
Deferred tax liability 182,000 103,000
4,227,727 5,199,051
Contingent Liabilaites
Shareholders' equity:
Preferred stock - par value $.01 0 0
Common stock 50,184 47,250
Additional paid in capital 13,151,881 10,209,814
Deferred compensation (5,209) (20,834)
Retained earnings 1,112,961 866,237
TOTAL SHAREHOLDERS' EQUITY 14,309,817 11,102,467
TOTAL LIABILITIES AND EQUITY $18,537,544 $16,301,518
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
Diversified Security Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
Nine months ended
September 30,
2002 2001
(UNAUDITED)
Sales $12,974,018 $8,350,863
Cost of goods sold 7,396,307 5,133,687
Gross profit 5,577,711 3,217,176
Operating expenses 5,097,668 2,773,742
Operating income 480,043 443,434
Interest:
Income (61,710) 0
Expense 113,029 154,113
Income before income taxes 428,724 289,321
Provision for income taxes 182,000 116,528
Net income $246,724 $172,793
Basic and diluted earnings per share:
Earnings per common share $0.05 $0.06
Weighted average common share 4,872,464 3,000,000
Weighted average diluted shares outstanding 4,947,464 3,075,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
Diversified Security Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
Three months ended
September 30,
2002 2001
(UNAUDITED)
Sales $5,580,002 $2,141,458
Cost of goods sold 3,129,668 1,312,388
Gross profit 2,450,334 829,070
Operating expenses 2,123,495 757,404
Operating income 326,839 71,666
Interest:
Income (23,243) 0
Expense 72,687 60,910
Income before income taxes 277,395 10,756
Provision (credit) for income taxes 117,000 (3,272)
Net income $160,395 $14,028
Basic and diluted earnings per share:
Earnings per common share $0.03 $0.00
Weighted average common share 4,872,464 3,000,000
Weighted average diluted shares outstanding 4,947,464 3,075,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
Diversified Security Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For nine Months Ended
September
2002 2001
Cash Flows and Operating Activities:
Net income for the nine months $ 246,724 $ 172,793
Adjustments to reconcile net income to net cash used in
operating activities:
Amortization of stock based compensation 15,625 15,625
Depreciation and amortization 439,192 165,000
Deferred income taxes 55,000 46,000
Changes in operating assets and liabilities:
Accounts receivable (1,447,424) (2,143,075)
Inventory (864,521) (106,422)
Costs in excess of billings 102,029 0
Other assets (160,102) (108,203)
Accounts payable (197,450) 458,935
Accrued taxes and expenses (112,632) (207,963)
Income taxes payable 166,000 (16,674)
Billings in excess of cost (80,014) 0
Customer deposits held 13,578 19,472
Cash used in operating activities (1,823,995) (1,704,512)
Cash Flows from Investing Activities:
Notes receivable (500,000)
Securities held to maturity 802,235 0
Computer software development costs (20,000) (65,000)
Purchase of property and equipment and leasehold improv. (849,043) (195,641)
Acquisitions (470,000)
Cash used in investing activities (1,036,808) (260,641)
Cash Flows from Financing activities:
Net proceeds (payments) of bank credit lines (830,239) 1,907,398
Capitalized lease obligation payments (9,566) (13,353)
Deferred IPO costs 0 (174,145)
Cash provided by (used in) financing activities (839,805) 1,719,900
Net cash decrease (3,700,608) (245,253)
Cash-beginning $ 8,914,473 $ 567,567
Cash-ending $ 5,213,865 $ 322,314
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 113,029 $ 154,113
Income taxes paid $ 165,000 $ 148,000
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
Notes to Financial Statements
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 periods presented. The
Notes to Financial Statements included in the Company's 2001 Annual Reports on
Form 10-KSB filed on April 1, 2002 should be read in conjunction with these
financial statements.
The financial statements include operations of Photo Scan Systems, Inc.
a California corporation (now known as Henry Bros. Electronics, Inc.) ("Photo
Scan")) from April 1, 2002, National Safe of California, Inc. from July 1, 2002
and Corporate Security Integration, L.L.C. (now known as Henry Bros.
Electronics, L.L.C., an Arizona Limited Liability Company ("CSI")) from August
1, 2002.
Acquisitions
As previously reported, on May 17, 2002, we purchased all of the issued
and outstanding shares of Photo Scan from Secure Alarm Systems Inc. ("Secure
Alarm"). Photo Scan, which is located in California, specializes in security
systems for medical facilities and provides sales, system design, installation,
service and maintenance of integrated security systems which include access
control, closed circuit television, intercom, audio alarm and property intrusion
detection. The purchase price for the issued and outstanding, shares of Photo
Scan was $600,000 of which $200,000 was paid in cash and balance was paid by
issuing 51,249 shares of our restricted common stock. Pursuant to the purchase
agreement, we also paid off a $200,000 note made by Photo Scan in favor of
Secure Alarm. The purchase agreement provides that in the event that one year
from May 17, 2002 (the "Reference Date"), the average closing sale price of our
common stock for the ten trading days immediately prior to the Reference Date
(the "Current Market Price") is less than $7.81 per share, we will pay Secure
Alarm an amount equal to the difference between $400,000 and the 51,249 shares
multiplied by the Current Market Price.
Effective as of August 13, 2002 (the "Closing") and as previously
reported on form 8-K, which was filed with the Securities and Exchange
Commission on August 27, 2002, Photo Scan, a wholly-owned subsidiary of ours,
purchased all of the issued and outstanding stock of National Safe of
California, Inc. ("National Safe"). National Safe supplies and services alarm
security equipment, backup high security systems, lock and locking mechanisms,
timing mechanisms, vault security, control systems and high resolution
surveillance equipment. The purchase price of the acquisition was $2,000,000,
which was paid by issuing an aggregate of 283,566 shares of our unregistered
and restricted common stock (the "Shares"). As part of this transaction, Photo
Scan made a $500,000 non-recourse loan, to Lee A. Kann, the seller of National
Safe's outstanding stock, due August 12, 2003. As collateral for the payment
of the promissory note, Mr. Kann assigned, pledged, transferred and granted a
security interest in 70,000 of the Shares to us. The Stock Purchase Agreement
pursuant to which the stock of National Safe was acquired, provides that in
the event that one year from the Closing (the "Reference Date"), the average
closing sale price of our common stock for the ten trading days immediately
prior to the Reference Date is less than $7.053 per share (the "Current Market
Price"), we have to within 10 days of the Reference Date, either purchase
212,675 of the Shares for $1,500,000 (subject to certain adjustments detailed
in the Stock Purchase Agreement) or pay Mr. Kann an amount equal to the
difference between (i) $1,500,000 and (ii) 212,675 (subject to certain
adjustments detailed in the Stock Purchase Agreement) multiplied by the
Current Market Price. The following table provides pro forma results of
operations for the nine months ended September 30, 2002 and 2001, as if National
Safe had been acquired at January 1, 2001. The pro forma results do not include
any anticipated cost savings or other effects of the planned integration of
National Safe. Accordingly, such amounts are not indicative necessarily of the
results that would have occurred if the acquisition had been completed on the
date indicated or to us that may result in the future.
7
PRO FORMA CONDENSED COMBINED RESULTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2002
Historic
----------------------------
Diversified National Adjustments Pro Forma
----------- -------- ----------- ---------
Sales $12,400,045 $2,018,595 $14,418,640
Net Income (Loss) $117,660 $(65,426) $(27,550) (1,2) $24,684
Earnings (Loss) per share
Basic $0.05 $0.00
Diluted $0.05 $0.00
NINE MONTHS ENDED SEPTEMBER 30, 2001
Historic
----------------------------
Diversified National Adjustments Pro Forma
----------- -------- ----------- ---------
Sales $8,350,863 $2,148,323 $10,499,186
Net Income (Loss) $172,792 $ (134,659) $(27,550) (1,2) $10,583
Earnings (Loss) per share
Basic $0.06 $0.00
Diluted $0.06 $0.00
(1) To amortize other intangibles (covenant not to compete for 5 years and
service rights and customers list for 15 years) on a straight line
basis.
(2) To record the effects of income tax benefits related to pro forma
adjustments using a 42% tax rate.
On September 22, 2002, Photo Scan Systems acquired Corporate Security
Integration, LLC ("CSI"). CSI is located in Phoenix, Arizona and specializes in
access controls and closed circuit television monitoring. The purchase price for
CSI was $815,000 of which $270,000 was paid in cash and $545,000 was paid by
issuing 78,542 shares of our common stock.
Intangible assets acquired (covenant not to compete for 5 years and
service rights and customers list for 15 years) are amortized on a straight line
basis.
Forward-Looking Statements
This quarterly report contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including, among
other things, our ability to utilize the acquisitions we have made, possible
significant variations in recognized revenue due to customer-caused delays in
installation, cancellation of our contracts by our customers and intense
competition that could cause actual results to differ materially from historical
earnings and those presently anticipated or projected. Furthermore, there can be
no assurance that our sales will increase or that our acquisitions will
positively contribute to earnings. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made. The Company wishes to advice readers that the factors listed
above, among other factors, could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements. The Company does not undertake, and specifically declines
any obligations, to publicly release the results of any revisions which may be
made to any forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of unanticipated
events.
8
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
three operating divisions are technical services, integration and manufacturing.
We provide services, which include:
o consulting and planning;
o engineering and design;
o systems integration;
o maintenance and technical support and
o threat assessment.
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 through our wholly-owned subsidiary Henry Bros.
Electronics, Inc. As part of an access control system, we may install, maintain
and monitor intrusion alarms and sometimes monitor building system alarm for
building maintenance systems and fire alarm systems; risk identification and
assessment; business resumption planning; chemical, biological response plans
and procedures; and development of emergency plans and procedures; equipment
identification and purchase.
Our Technical Services division advises clients on their overall
security needs, including:
o risk identification and assessment;
o business resumption planning;
o chemical and biological response plans and procedures;
o development of emergency plans and procedures; and
o equipment identification and purchase.
We also manufacture, develop and assemble various security-related
products, which we use in our own installations and for sales to other
integrators under the trade name Viscom Products.
(b) Results of Operations
Comparison of three and nine months ended September 30, 2002 to the
three and nine months ended September 30, 2001.
Sales. Sales for the quarter ended September 30, 2002 totaled
$5,580,002 representing an increase of 160.6 % or $3,438,544 from $2,141,458
reported for the same quarter a year ago. We attribute $2,158,950 of this
increase to internal growth and $1,279,547 to the acquisitions of Photo
Scan, National Safe and CSI.
Sales for the nine months ended September 30, 2002 were $12,974,018
representing an increase of 55.4 % or $4,623,155 compared to $8,350,863 for the
nine months ended September 30, 2001. We attribute $3,143,862 of this increase
to internal growth and $1,479,293 from the aforementioned acquisitions. Sales
for the nine months ended September 30,2002, have already exceeded our sales
for all of 2001 by $1,045,405 or 8.8%.
9
Cost of Goods Sold. Cost of goods sold for the quarter ended September
30, 2002 decreased as a percentage of sales by 5% compared to cost of goods sold
for the three months ended September 30, 2001. For the three months ended
September 30, 2002, cost of goods sold increased by $1,817,280 compared to the
three months ended September 30, 2001.
Cost of goods sold for the nine months ended September 30, 2002
increased as a percentage of sales by approximately 4%. The Company attributes
this increase to the cost of operating improvements that have not been fully
realized.
Cost of goods sold for nine months ended September 30, 2002 increased
by $2,262,620 compared to the nine months ended September 30, 2001.
We attribute the increase in cost of goods sold in the three and nine
months of 2002 compared to the comparable three and nine months of 2001
primarily to an increase in sales.
Operating Expenses. Operating expenses for the quarter ended September
30, 2002 were 38.1% of sales. For the quarter ended September 30, 2002,
operating expenses increased $1,366,091 or 2.7% of sales compared to the
quarter ended September 30, 2001. Operating expenses for the nine months ended
September 30, 2002 were 39.3% of sales. For the nine months ended September 30,
2002, operating expenses increased by $2,323,926 or 6.1% of sales compared to
the nine months ended September 30, 2001.
We attribute the increase in operating expenses to the hiring of
additional employees, primarily in sales and in our Technical Services division,
the training and other costs associated with these new employees and to
acquisition costs. We expect that these additional employees and our
acquisitions will enable us to continue to increase our sales and earnings.
Operating Income. Operating income for the quarter ended September 30,
2002 totaled $326,839 or 5.9% of sales. This was an increase of approximately
$255,173 or 2.6% of sales compared to the quarter ended September 30, 2001. Of
this increase, approximately $77,572 was the result of sales derived from our
recent acquisitions. For the nine months ended September 30, 2002 operating
income was $480,043 or 3.7% of sales. This was an increase of $36,609 or 1.6%
compared to the nine months ended September 30, 2001. The increase in operating
income is attributable to an increase in revenue and the more efficient use of
our resources.
Interest Expense - net. Interest Expenses net of interest income for
the three months ended September 30, 2002 was $49,444 compared to $60,910 for
the comparable period a year ago. For the nine months ended September 30, 2002
interest expense net of interest income decreased to $51,319 compared to
$154,113 for the nine months ended September 30, 2001.
The decrease in interest expense was due to not borrowing additional
funds, lower interest rates and $61,710 in interest income for the nine months
ended September 30, 2002, compared to interest income of $23,243 for the quarter
ended September 30, 2002. Interest income was generated by short-term investment
of the balance of the proceeds of our initial public offering.
Net Income. Net income for the quarter ended September 30, 2002 totaled
$160,395 or 2.8% of sales. This was an increase of $146,367 compared to the
three months ended September 30, 2001. For the nine months ended September 30,
2002, net income was $246,724 or 1.9% of sales. Net income increased by $73,931
or 42.8% compared to the nine months ended September 30, 2001.
Basic earnings per share was $0.03 on 4,872,464 basic weight average
common shares outstanding for the three months ended September 30, 2002 compared
to $.00 per share on 3,000,000 basic weight average common shares outstanding
for the three months ended September 30, 2002.
10
Basic earnings per share was $0.05 on 4,872,464 basic weighted average
common share outstanding for the nine months ended September 30, 2002 compared
to $0.06 per share on 3,000,000 basic weighted average common shares outstanding
for the nine months ended September 30, 2001.
The decrease in basic earnings per share is attributed to the issuance
of additional shares in connection with the acquisitions of Photo Scan, National
Safe and CSI.
(c) Liquidity and Capital Resources
In 2001, we completed our initial public offerings of 1,725,000 shares
of our common stock and received net proceeds of approximately $9,983,264
(including proceeds received from the sale of 275,000 shares of our common stock
upon exercise of the underwriter's over allotment option).
Net Cash Used in Operating Activities. Net cash used in operating
activities amounted to $1,823,995 for the nine months ended September 30, 2002
as compared to $1,704,512 during the same period a year ago.
Net Cash Used in Investing Activities. Net cash used in investing
activities amounted to $1,036,808 for the nine months ended September 30, 2002
as compared to $260,641 for the same period a year ago.
Net Cash Provided by (Used In) Financing Activities. Net cash used in
by financing activities amounted to $839,805 for the nine months ended September
30, 2002 as compared to $1,719,900 provided by financing activities for the same
period a year ago.
Our capital requirements have grown substantially since our inception
due to the growth of our operations caused by increased staffing and the
acquisitions we have made. 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, available lines of credit and the cash expected to be generated
from operations will be sufficient to meet our capital requirements for at
lease the next twelve months.
(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.
In June 2001, the Financial Accounting Standards board issued "SFAS"
No. 143, Accounting for Asset Retirement Obligations, which addresses the
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Company is currently assessing the impact on the consolidated financial
statements and will adopt the provisions of this standard in the first quarter
of 2003.
In October, 2001, the Financial Accounting Standards board issued
"SFAS" No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which established a universal accounting model based on the framework
established in SFAS 121 for long-lived assets to be disposed of by sale. The
Company adopted the provisions in the first quarter of 2002 and it had not
impact to the consolidated financial statements.
Item 3. Controls and Procedures
Within 90 days of the filing of this report on Form 10-QSB, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including James E. Henry, Chairman and Chief Executive
Officer, and Louis Massad, Chief Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures as defined in Exchange Act Rules
13a-14 and 15d-14. Based upon that evaluation, Messrs. Henry and Massad have
concluded that the Company's disclosure controls procedures are functioning
effectively to provide reasonable assurance that the Company is meeting its
disclosure obligations. There have been no significant changes in the Company's
internal controls or in other facts that could significantly affect internal
controls since the date of Messrs. Henry's and Massad's most recent review of
the Company' internal control systems. The design of any system
11
of internal controls and procedures is based upon certain assumptions about the
likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goal under all potential future conditions,
regardless of how remote.
Part II Other Information -
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
As stated above, on August 13, 2002, Photo Scan Systems, Inc. one of
our wholly-owned subsidiaries purchased all of the issued and outstanding shares
of National Safe of California, Inc. from Lee A. Kann. The purchase price was
$2,000,000, which was paid by issuing an aggregate of 283,566 shares of our
unregistered and restricted common stock. The issuance of the securities to Lee
Kann was in reliance on the exemption provided by Section 4(2) of the Securities
Act of 1933, as amended, as a transaction not involving a public offering.
As stated above, on September 22, 2002, Photo Scan Systems, Inc.,
purchased 100% of the membership interest of CSI from Patrick Warner, its sole
member. The purchase price for the membership interest was $815,000 of which
$270,000 was paid in cash and $545,000 was paid by issuing 78,542 shares of our
common stock to Mr. Warner. The issuance of the securities in this transaction
was in reliance on the exemption provided by Section 4(2) of the Securities Act
of 1933, as amended, as a transaction not involving a public offering.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
At our 2002 Annual Meeting of stockholders held on October 28, 2002,
the following individuals constituting all of the members of the Board of
Directors, were elected. For each elected director, the results of the voting
were:
Name Number of Votes For Votes Withheld
---- ------------------- --------------
Robert S. Benou 4,715,200 4,350
James E. Henry 4,709,700 9,850
Leroy Kirchner 4,715,200 4,350
Sal Lifrieri 4,709,700 9,850
Louis S. Massad 4,709,700 9,850
Joseph P. Ritorto 4,715,200 4,350
Irvin F. Witcosky 4,709,680 9,870
The stockholders voted to ratify the selection of Demetrius & Company,
L.L.C. as our independent accountants for 2002. The results of the voting of
this proposal were 4,712,150 in favor, 4,500 against and 2,900 abstentions.
The stockholders also approved adoption of the Company's 2002 Stock
Option Plan. The results of the voting of this proposal were 4,665,360 in favor,
44,690 against and 9,500 abstentions.
Item 5. Other Information
Not applicable
12
Item 6. Exhibits and Reports on Form 8K
a) The following exhibits are included in this Form 10QSB.
2.1 Stock Purchase Agreement by and among Diversified Security
Solutions, Inc., Photo Scan Systems, Inc., National Safe of
California, Inc. and Lee A. Kann dated August 13, 2002;
incorporated by reference to the 8-K of the Company filed
with the Securities and Exchange Commission on August 27,
2002.
10.1 Employment Agreement of Salvatore Lifrieri, dated August 13,
2002.
b) Reports on 8-K
On August 27, 2002, we filed an 8-K reporting an Item 2 event
announcing a definitive agreement to purchase all of the issued and outstanding
common stock of National Safe of California, Inc. On October 25, 2002, we filed
amendment Number 1 to the 8-K filed on August 27, 2002 to file the unaudited pro
forma condensed combined balance sheet as of June 30, 2002 and unaudited pro
forma condensed combined statement of operations for the six months ended June
30, 2002 and the year ended December 31, 2001 to reflect the acquisition of
National Safe of California, Inc.
Pursuant to signatures 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.
DIVERSIFIED SECURITY SOLUTIONS, INC.
By: /s/ James E. Henry
---------------------------------------------
James E. Henry
Chairman and Chief Executive Officer
By: /s/ Louis Massad
---------------------------------------------
Louis Massad
Chief Financial Officer
Dated: November 14, 2002
13
Certification of Chief Executive Officer
for Quarterly Report on Form 10-QSB
I, James E. Henry, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Diversified
Security Solutions, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ James E. Henry
----------------------------------------------------
James E. Henry, Chairman and Chief Executive Officer
14
Certification of Chief Financial Officer
for Quarterly Report on Form 10-QSB
I, Louis Massad, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Diversified
Security Solutions, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function);
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Louis Massad
-----------------------------------------------------
Louis Massad, Chief Financial Officer, Vice President
and Treasurer
15