|
|
|
Form
10Q
LAW
ENFORCEMENT ASSOCIATES CORP - AID
Filed:
November 6, 2008 (period: September 30, 2008)
Quarterly
report filed by small businesses
|
|
UNITED
STATES SECURITIES AND
EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the
Quarter Ended September 30, 2008
Commission
File No. 000-49907
Law
Enforcement Associates Corporation
(Name of
Small Business Issuer in Its Charter)
Nevada
|
56-2267438
|
(State of
other jurisdiction of
Incorporation or
Organization)
|
(Employer
Identification Number)
|
|
|
2609
Discovery Drive Suite 125, Raleigh, North Carolina 27616
(Address
of principal executive offices) (Zip Code)
(919)
872-6210
(Issuer's
Telephone Number, Including Area Code)
Check
whether the Issuer: (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities 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 30
days:
Yes [X]
No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of accelerated filer and large accelerated filer in Rule 12b-12 of
the Exchange Act (Check one)
Large
Accelerated
filer Accelerated
filer
Non-accelerated
filer
Smaller
Reporting Company
X
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes No
X
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the close of the period covered by this report: 25,782,433 Shares
of Common Stock (no par value).
PART I:
FINANCIAL
INFORMATION
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|
|
Item
1 -
|
Financial
Statements
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|
|
Item
2 -
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
|
Item
3 -
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
|
Item
4T -
|
Controls
and Procedures
|
|
|
PART II:
OTHER
INFORMATION
|
|
|
Item
1 -
|
Legal
Proceedings
|
|
|
Item
2 -
|
Changes
in Securities
|
|
|
Item
3 -
|
Defaults
Upon Senior Securities
|
|
|
Item
4 -
|
Submission
of Matters to a Vote of Security Holders
|
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|
Item
5 -
|
Other
Information
|
|
|
Item
6 -
|
Exhibits
|
NOTE
CONCERNING FORWARD-LOOKING STATEMENTS
This
Report contains certain forward-looking statements, including the plans and
objectives of management for the business, operations, and economic performance
of Law Enforcement Associates Corp. (the “Company”). These forward-looking
statements generally can be identified by the context of the statement or the
use of words such as the Company or its management “believes,” “anticipates,”
“intends,” “expects,” “plans” or words of similar meaning. Similarly, statements
that describe the Company’s future operating performance, financial results,
plans, objectives, strategies, or goals are forward-looking statements. Although
management believes that the assumptions underlying the forward-looking
statements are reasonable, these assumptions and the forward-looking statements
are subject to various factors, risks and uncertainties, many of which are
beyond the control of the Company. Accordingly, actual results could differ
materially from those contemplated by the forward-looking statements. In
addition to the other cautionary statements relating to certain forward-looking
statements throughout this Report, attention is directed to “Business —
Cautionary Information Regarding Forward-Looking Statements” below for
discussion of some of the factors, risks and uncertainties that could affect the
outcome of future results contemplated by forward-looking
statements.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Consolidated
Balance Sheets
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
23,364
|
|
|
$
|
325,244
|
|
Trade
accounts receivable (net of allowance for doubtful
|
|
|
|
|
|
|
|
|
accounts
of $30,000 and $33,205 at September 30, 2008
|
|
|
|
|
|
|
|
|
and
December 31, 2007, respectively)
|
|
|
1,518,980
|
|
|
|
713,067
|
|
Inventories
|
|
|
1,417,098
|
|
|
|
1,256,346
|
|
Prepaid
expenses
|
|
|
62,713
|
|
|
|
38,187
|
|
Deferred
tax asset-current
|
|
|
199,454
|
|
|
|
769,338
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,221,609
|
|
|
|
3,102,182
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
183,795
|
|
|
|
257,025
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Intangibles,
net
|
|
|
2,563,594
|
|
|
|
2,883,542
|
|
Deferred
tax asset less current portion
|
|
|
889,367
|
|
|
|
296,147
|
|
Total
other assets
|
|
|
3,452,961
|
|
|
|
3,179,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
6,858,365
|
|
|
$
|
6,538,896
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Consolidated
Balance Sheets
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Liabilities
and Stockholders' Equity
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Current
liabilities:
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
890,178
|
|
|
$
|
570,975
|
|
Line
of credit
|
|
|
175,000
|
|
|
|
200,000
|
|
Accrued
expenses
|
|
|
374,758
|
|
|
|
357,413
|
|
Customer
deposits
|
|
|
7,744
|
|
|
|
24,533
|
|
Total
current liabilities
|
|
|
1,447,680
|
|
|
|
1,152,921
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,447,680
|
|
|
|
1,152,921
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, subject to possible redemption
|
|
|
|
|
|
|
|
|
1,200,000
shares, at redemption value
|
|
|
1,414,823
|
|
|
|
1,338,170
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 50,000,000 authorized,
|
|
|
|
|
|
|
|
|
25,782,433
issued and outstanding at September 30, 2008
|
|
|
|
|
|
|
|
|
and
December 31, 2007
|
|
|
25,782
|
|
|
|
25,782
|
|
Treasury
stock at cost, 595 shares of common stock held by
|
|
|
|
|
|
|
|
|
the
Company
|
|
|
(625
|
)
|
|
|
(625
|
)
|
Paid
in capital in excess of par
|
|
|
4,995,595
|
|
|
|
4,995,595
|
|
Retained
earnings/(accumulated deficit)
|
|
|
(1,024,890
|
)
|
|
|
(972,947
|
)
|
Total
stockholders' equity
|
|
|
3,995,862
|
|
|
|
4,047,805
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
6,858,365
|
|
|
$
|
6,538,896
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Consolidated
Statements of Operations and Retained Earnings
for the
Nine Months Ended September 30, 2008 and 2007
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
6,225,583
|
|
|
$
|
5,091,554
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
3,950,503
|
|
|
|
3,216,104
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
2,275,080
|
|
|
|
1,875,450
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
52,401
|
|
|
|
72,716
|
|
Operating
expenses
|
|
|
2,177,579
|
|
|
|
2,194,807
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
2,229,980
|
|
|
|
2,267,523
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
45,100
|
|
|
|
(392,073
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Loss
on sale of assets
|
|
|
(43,666
|
)
|
|
|
0
|
|
Other
income
|
|
|
11,935
|
|
|
|
0
|
|
Interest
income
|
|
|
1,439
|
|
|
|
6,372
|
|
Interest
expense
|
|
|
(13,434
|
)
|
|
|
0
|
|
Interest
accretion
|
|
|
(76,653
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(120,379
|
)
|
|
|
6,372
|
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes
|
|
|
(75,279
|
)
|
|
|
(385,701
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax provision (benefit)
|
|
|
(23,336
|
)
|
|
|
(159,492
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(51,943
|
)
|
|
$
|
(226,209
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
per weighted average share, basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares, basic and diluted
|
|
|
25,782,433
|
|
|
|
25,324,338
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Consolidated
Statements of Operations and Retained Earnings
for the
Three Months Ended September 30, 2008 and 2007
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
2,397,224
|
|
|
$
|
1,314,518
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,450,593
|
|
|
|
918,067
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
946,631
|
|
|
|
396,451
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
12,509
|
|
|
|
32,096
|
|
Operating
expenses
|
|
|
771,035
|
|
|
|
805,432
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
783,544
|
|
|
|
837,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
163,087
|
|
|
|
(441,077
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Loss
on sale of assets
|
|
|
0
|
|
|
|
0
|
|
Other
income
|
|
|
5,329
|
|
|
|
0
|
|
Interest
income
|
|
|
119
|
|
|
|
6,038
|
|
Interest
expense
|
|
|
(2,491
|
)
|
|
|
0
|
|
Interest
accretion
|
|
|
(25,551
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(22,594
|
)
|
|
|
6,038
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before provision for income taxes
|
|
|
140,493
|
|
|
|
(435,039
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes (benefit)
|
|
|
44,092
|
|
|
|
(168,811
|
)
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
96,401
|
|
|
$
|
(266,228
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
per weighted average share, basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares, basic and diluted
|
|
|
25,782,433
|
|
|
|
25,382,433
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Consolidated
Statements of Cash Flows
for the
Nine Months Ended September 30, 2008 and 2007
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(51,943
|
)
|
|
$
|
(226,209
|
)
|
Adjustments
to reconcile net income to net cash provided (used)
|
|
|
|
|
|
|
|
|
by
operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
374,280
|
|
|
|
182,470
|
|
Put
option discount expense
|
|
|
76,653
|
|
|
|
0
|
|
Deferred
taxes
|
|
|
(23,336
|
)
|
|
|
(159,492
|
)
|
Loss
on sale of assets
|
|
|
43,666
|
|
|
|
0
|
|
Change
in allowance for doubtful accounts
|
|
|
(3,205
|
)
|
|
|
0
|
|
Change
in inventory reserves
|
|
|
(33,349
|
)
|
|
|
0
|
|
Common
stock issued for services
|
|
|
0
|
|
|
|
84,240
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
(802,708
|
)
|
|
|
347,094
|
|
Inventories
|
|
|
(127,403
|
)
|
|
|
(260,259
|
)
|
Refundable
income taxes
|
|
|
0
|
|
|
|
62,264
|
|
Prepaid
insurance and other assets
|
|
|
(24,526
|
)
|
|
|
(27,100
|
)
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Trade
accounts payable and accrued expenses
|
|
|
336,548
|
|
|
|
57,835
|
|
Customer
deposits
|
|
|
(16,789
|
)
|
|
|
14,517
|
|
Net
cash provided (used) by operating activities
|
|
|
(252,112
|
)
|
|
|
75,360
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Payments
for deferred charges
|
|
|
0
|
|
|
|
413
|
|
Proceeds
from sale of property and equipment
|
|
|
6,000
|
|
|
|
0
|
|
Capital
expenditures
|
|
|
(30,768
|
)
|
|
|
(26,799
|
)
|
Net
cash provided (used) in investing activities
|
|
|
(24,768
|
)
|
|
|
(26,386
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows financing activities:
|
|
|
|
|
|
|
|
|
Net
payments under line of credit agreement
|
|
|
(25,000
|
)
|
|
|
0
|
|
Payments
on long-term debt
|
|
|
0
|
|
|
|
(40,000
|
)
|
Net
cash provided (used) in financing activities
|
|
|
(25,000
|
)
|
|
|
(40,000
|
)
|
Net
increase (decrease) in cash
|
|
|
(301,880
|
)
|
|
|
8,974
|
|
Cash
at beginning of the period
|
|
|
325,244
|
|
|
|
452,124
|
|
Cash
at end of the period
|
|
$
|
23,364
|
|
|
$
|
461,098
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest expense
|
|
$
|
13,434
|
|
|
$
|
957
|
|
Cash
paid for income taxes
|
|
$
|
1,855
|
|
|
|
0
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Notes to
Consolidated Financial Statements
(unaudited)
1.
SIGNIFICANT
ACCOUNTING POLICIES
Basis of
Presentation
The
consolidated financial statements have been prepared by Law Enforcement
Associates Corporation (the “Company”). Certain information and accounting
policies and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Although management of
the Company believes the disclosures contained herein are adequate to make the
information presented not misleading, these consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company’s annual report on Form 10KSB for the
fiscal year ended December 31, 2007.
Management
believes the accompanying consolidated financial statements contain all
adjustments, consisting of only normal recurring accruals and adjustments which,
in the opinion of management, are necessary to present fairly its financial
position as of September 30, 2008 and 2007. These consolidated financial
statements are not necessarily indicative of results to be expected for the full
year.
Organization and
Operations
Law
Enforcement Associates Corporation (originally Academy Resources, Inc.) was
formed on December 3, 2001 when the Company acquired all the outstanding stock
of Law Enforcement Associates, Inc., a New Jersey company, incorporated in 1972,
doing business in North Carolina.
The
operations of the Company consist of manufacturing and providing surveillance
and intelligence gathering products and vehicle inspection equipment. Products
are used by law enforcement agencies, the military, security and correctional
organizations.
Principles of
Consolidation
The
consolidated financial statements include the accounts of Law Enforcement
Associates Corporation and its wholly-owned subsidiaries Law Enforcement
Associates, Inc. and Law Enforcement Associates Holding Company, Inc. All
intercompany transactions have been eliminated in consolidation. The
consolidated statements have been prepared on the accrual basis of accounting in
accordance with generally accepted accounting principles in the United States of
America. Management of the Company has determined that the Company’s operations
are comprised of one reportable segment as that term is defined in SFAS No.131.
Therefore, no separate segment disclosures have been included in the
accompanying notes to the consolidated financial statements.
Fair Value of Financial
Instruments
The
Company’s financial instruments include cash, accounts receivable and accounts
payable. Due to the short-term nature of these instruments, the fair value of
these instruments approximates their recorded value.
Trade Accounts
Receivable
Trade
accounts receivable are carried at their estimated collectible amount. Trade
credit is generally extended on a short-term basis; thus, trade receivables do
not bear interest. The Company reports trade accounts receivable net of an
allowance for doubtful accounts equal to the estimated losses to be incurred.
Estimated losses are based on actual collection experience and management’s
evaluation of the current status of existing trade receivables.
Inventories
Inventories
are stated at the lower of cost or market on the first-in, first-out basis.
Provisions are made to reduce potentially excess, obsolete or slow-moving
inventories to their net realizable value. Costs associated with shipping and
handling of inventory are included in inventory cost and charged to cost of
sales when inventory is shipped.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Notes to
Consolidated Financial Statements
(unaudited)
1.
SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
Property and
Equipment
Property
and equipment are recorded at cost. Expenditures for major additions and
improvements are capitalized and minor replacements, maintenance, and repairs
are charged to expense as incurred. When property and equipment are retired or
otherwise disposed of, the cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss is included in the results of
operations for the respective periods. Depreciation is computed over the
estimated useful lives of the related assets using the straight-line methods for
financial statement purposes.
Revenue
Recognition
The
Company recognizes revenues when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, title has transferred, the
price is fixed and collection is reasonably assured. All of the Company’s sales
are final and customers do not have a right to return the product. Most
customers are charged shipping fees, which are recorded as a component of net
sales. Training revenue is recorded as the service is provided.
Income
Taxes
Deferred
income taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carry forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
The
Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes: An Interpretation of FASB Statement No. 109
(“FIN
No. 48”), on January 1, 2007. This interpretation clarifies the accounting
for uncertainty in income taxes recognized in an entity’s financial statements
in accordance with SFAS No. 109. FIN No. 48 prescribes a recognition
threshold and measurement principles for the financial statement recognition and
measurement of tax positions taken or expected to be taken on a tax return. The
Company reviewed its tax positions and determined that no adjustment was needed
upon adoption of FIN No. 48.
The
Company’s policy is to recognize interest expense related to unrecognized tax
benefits in interest expense and penalties in other expense.
Net Income
(Loss)
Per
Share
Basic
earnings (loss) per share is computed by dividing the Company’s consolidated net
income (loss) by the weighted-average number of shares of common stock and
common stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of the
outstanding stock options and warrants, using the treasury stock method. There
are no common stock equivalents for the Company at September 30,
2008.
Product
Warranty
The
Company provides a provision for estimated warranty repairs. The accrued
warranty provision was $52,496 and $59,911 at September 30, 2008 and December
31, 2007, respectively.
Advertising
The
Company expenses the production costs of advertising as incurred, except for
direct-response advertising, which is capitalized and amortized over its
expected period of future benefits within the calendar year. During the nine
months ended September 30, 2008 and 2007, advertising costs were $82,025 and
$67,334, respectively. All advertising costs are included in operating expenses
in the accompanying consolidated statements of operations.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Notes to
Consolidated Financial Statements
(unaudited)
1.
SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
Research and
Development
The
Company expenses research and development costs as incurred. The Company
incurred product development expense of $52,401 and $72,716 for the nine months
ended September 30, 2008 and 2007, respectively.
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Recently Issued Accounting
Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 provides guidance for using fair value to measure assets and
liabilities and requires additional disclosure about the use of fair value
measures, the information used to measure fair value, and the effect fair value
measurements have on earnings. SFAS 157 does not require any new fair value
measurements. SFAS 157 for financial assets and financial liabilities is
effective for the Company beginning January 1, 2008. On January 1, 2009, the
beginning of the next fiscal year, the standard will also apply to non-financial
assets and non-financial liabilities of the Company. The adoption of SFAS 157
for financial assets and financial liabilities did not have a material impact on
the Company’s consolidated financial statements. FASB Staff Position SFAS 157-2,
“Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”) delays the
effective date of SFAS 157 for non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). Management is
evaluating the impact that SFAS 157 will have on its non-financial assets and
non-financial liabilities. The adoption of SFAS No. 157 effective January 1,
2008, did not have a material impact on its consolidated financial
statements.
In
February 2007, the FASB issued SFAS No., 159, The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment to FASB
Statements No. 115 (“SFAS 159”). This statement permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. This statement is expected to expand the use of fair
value measurement, which is consistent with the FASB’s long-term measurement
objectives for accounting for financial instruments. SFAS No. 159 is effective
for the Company beginning January 1, 2008. The adoption of SFAS 159 did not have
a material effect on the Company’s consolidated financial statements as
management did not elect the fair value measurement option under the provisions
of SFAS 159 for any of the Company’s financial assets or
liabilities.
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued FASB
Statements No.141 (revised 2007), “Business Combinations” (“FAS 141(R)”) and No.
160, “Noncontrolling Interests in Consolidated Financial Statements” (“FAS
160”). These standards aim to improve, simplify, and converge internationally
the accounting for business combinations and the reporting of noncontrolling
interests in consolidated financial statements. The provisions of FAS 141 (R)
and FAS 160 are effective for the fiscal year beginning after December 15, 2008.
The Company believes that the impact of these items upon adoption will not be
material to its consolidated financial statements.
In April
2008, the FASB issued Staff Position FSP FAS 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP FAS 142-3”). The FSP amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible Assets”. The intent of the FSP is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair value of
the asset under other accounting principles generally accepted in the United
States of America. The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. The guidance for determining the
useful life of a recognized intangible asset shall be applied prospectively to
intangible assets acquired after the effective date. Certain disclosure
requirements shall be applied prospectively to all intangible assets recognized
as of, and subsequent to, the effective date.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Notes to
Consolidated Financial Statements
(unaudited)
2.
INVENTORIES
Inventories
consist of the following at September 30, 2008 and December 31,
2007:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Raw
Materials
|
|
$
|
624,828
|
|
|
$
|
625,247
|
|
Work-in-process
|
|
|
139,542
|
|
|
|
90,098
|
|
Finished
goods
|
|
|
652,728
|
|
|
|
541,001
|
|
|
|
$
|
1,417,098
|
|
|
$
|
1,256,346
|
|
The
provision for excess, obsolete or slow-moving was $166,515 and $199,865 at
September 30, 2008 and December 31, 2007, respectively.
3.
PROPERTY AND
EQUIPMENT
The
following is a summary of property and equipment, at September 30, 2008 and
December 31, 2007:
|
|
September
30,
|
|
|
December
31,
|
|
|
Useful
Life
|
2008
|
|
|
2007
|
|
Office
furniture & equipment
|
5
to 7 years
|
|
$
|
95,905
|
|
|
$
|
107,623
|
Leasehold
improvements
|
7
years
|
|
|
14,218
|
|
|
|
5,139
|
Vehicles
|
3
to 5 years
|
|
|
101,129
|
|
|
|
101,129
|
Machinery
& equipment
|
5
to 7 years
|
|
|
291,420
|
|
|
|
459,032
|
|
|
|
|
502,672
|
|
|
|
672,922
|
Less
accumulated depreciation
|
|
|
|
318,877
|
|
|
|
415,898
|
|
|
|
$
|
183,795
|
|
|
$
|
257,025
|
Depreciation
expense for the nine months ended September 30, 2008 and 2007 was $54,332 and
$59,067, respectively.
4.
INCOME
TAXES
In
accordance with SFAS 109, deferred income taxes and benefits are provided for
the results of operations of the Company for the tax effects of temporary
differences and carry-forwards that give rise to significant portion of deferred
tax assets and liabilities.
On
January 15, 2008, Raymond James Financial, Inc. through its subsidiary, Sirchie
Acquisition Company, LLC, acquired 51% interest (13,149,334 shares) in Law
Enforcement Associates from Sirchie Finger Print Laboratories, Inc. and John
Carrington. Based on the change in ownership, the Company’s net operating loss
carry forward may be subject to certain limitations in any one year. Therefore,
these net operating loss carryforwards have been classified as long-term in the
consolidated balance sheet at September 30, 2008.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Notes to
Consolidated Financial Statements
(unaudited)
4.
INCOME
TAXES
(Continued)
Current
tax expense (benefit) is the only component present in the provision for income
taxes in the accompanying statement of operations. A reconciliation of the
statutory federal income tax rate and effective rate is as follows at September
30:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Statutory
federal income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
State
income tax - net of federal benefit
|
|
|
1
|
%
|
|
|
3
|
%
|
Other
|
|
|
(4
|
%)
|
|
|
4
|
%
|
Effective
tax rate
|
|
|
31
|
%
|
|
|
41
|
%
|
The
Company is no longer subject to U.S. Federal and State examinations by tax
authorities for years before 2004.
Facility
The
Company formally leased its office and manufacturing facility from Sirchie
Finger Print Laboratories, Inc. Rent expense incurred under this lease for the
nine months ended September 30, 2008 and 2007 was $32,237 and $129,750,
respectively. This lease was terminated during the 1
st
quarter
of 2008.
On
December 15, 2007, the Company entered into a lease with Zabarsky Investments
Ltd. L.P. The Company currently leases approximately 6,000 square feet of space
for our recently acquired van division at approximately $4,750 per month. The
lease term is 60 months. Rent expense incurred under this lease for the nine
months ended September 30, 2008 was $42,750.
Effective
March 2008, the Company moved its headquarters from the Youngsville facility and
entered into a lease with Zabarsky Investments Ltd. L.P. The Company currently
leases approximately 10,000 square feet of space for our new Raleigh, North
Carolina headquarters at approximately $7,900 per month. The lease term is 60
months. Rent expense incurred under this lease for the nine months ended
September 30, 2008 was $63,333.
The
following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of September 30, 2008:
Remainder
of 2008
|
|
$
|
40,104
|
|
2009
|
|
|
160,415
|
|
2010
|
|
|
160,415
|
|
2011
|
|
|
160,415
|
|
2012
|
|
|
153,782
|
|
Later
years
|
|
|
8,631
|
|
Total
minimum payments required
|
|
$
|
683,762
|
|
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Notes to
Consolidated Financial Statements
(unaudited)
At
December 31, 2007 and various times during 2008 and 2007, the Company maintained
deposits in excess of Federal Deposit Insurance Corporation insured
limits.
For the
nine months ended September 30, 2008 and 2007, sales to one customer accounted
for 11% and 13% of total sales, respectively. Another customer accounted for 12%
of total sales for the nine months ended September 30, 2008. For the nine months
ended September 30, 2008, one customer accounted for 46% of total accounts
receivable.
Patent
costs include the acquired costs of obtaining patents. Costs for patents are
capitalized and amortized over the estimated useful life of the patents, usually
15 years, using the straight-line method. In the event a patent is superseded,
the unamortized cost will be written off immediately. Trade names, marketing
list, and drawings/designs are tested at least annually for impairment under
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
The Company has determined that no impairment exists on the trade name,
marketing list, and drawings/designs based on the undiscounted future cash flows
generated by these assets.
During
the 3
rd
Quarter
of 2008, the Company recognized a non-cash charge of $150,000 on our patents
related to the stun pistol. This decision was based upon an analysis of
recoverability and the fact that the patents have provided no income to
date.
Intangible
assets consist of the following at September 30, 2008 and December 31,
2007:
|
|
|
September
30,
|
|
|
December
31,
|
|
|
Estimated
Life
|
|
2008
|
|
|
2007
|
|
Patents
|
15
years
|
|
$
|
597,960
|
|
|
$
|
747,961
|
|
Trade
name
|
25
years
|
|
|
1,400,000
|
|
|
|
1,400,000
|
|
Drawings/designs
|
10
years
|
|
|
411,000
|
|
|
|
411,000
|
|
AVS
Marketing List
|
12
years
|
|
|
470,000
|
|
|
|
470,000
|
|
AVS
Engineered Drawings
|
15
years
|
|
|
230,000
|
|
|
|
230,000
|
|
AVS
Trade Name
|
15
years
|
|
|
190,000
|
|
|
|
190,000
|
|
|
|
|
|
3,298,960
|
|
|
|
3,448,961
|
|
Less
accumulated amortization
|
|
|
|
735,366
|
|
|
|
565,419
|
|
Total
intangibles, net
|
|
|
$
|
2,563,594
|
|
|
$
|
2,883,542
|
|
Amortization
expense for the nine months ended September 30, 2008 and 2007 was $169,948 and
$123,403, respectively. Estimated future amortization expense is as follows at
September 30, 2008:
Year
|
|
Amount
|
|
Remainder
of 2008
|
|
$
|
53,524
|
|
2009
|
|
|
214,097
|
|
2010
|
|
|
214,097
|
|
2011
|
|
|
214,097
|
|
2012
|
|
|
214,097
|
|
Future
Years
|
|
|
1,653,682
|
|
|
|
$
|
2,563,594
|
|
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Notes to
Consolidated Financial Statements
(unaudited)
The
Company had a $750,000 line of credit with a bank, which bears interest at LIBOR
(2.46% and 4.60% at June 30, 2008 and December 31, 2007, respectively) plus
3%. Substantially all the assets of the Company are pledged to secure
the line. The line required maintenance of a minimum net worth of $3.5 million.
At September 30, 2008 and December 31, 2007, the Company had $175,000 and
$200,000, respectively outstanding on the line of credit.
The
Company’s existing line of credit matured in May 2008. The Company is currently
in negotiations with other financial institutions to secure another line of
credit. No assurance can be given that we will be able to obtain financing on
acceptable terms, if at all. As we generally obtain all of our funding from
operations, a decrease in revenue could negatively impact our short and long
term liquidity. A change in the current political situation or a decrease in
military spending could result in decreased sales of some of our
products.
The
Company has a 401(k) Profit Sharing Plan (the “Plan”) to provide retirement
benefits for its eligible employees. Eligible employees may contribute up to the
maximum annual amount as set periodically by the Internal Revenue Service. The
Plan provides for a discretionary employer match of up to 6% of the employees’
compensation. The Company recognized expense of $59,871 and $48,116 for employer
discretionary matches for the nine months ended September 30, 2008 and 2007,
respectively. Additionally, the Plan provides for a discretionary profit sharing
contribution. Such contributions to the Plan are allocated among eligible
participants in the proportion of their salaries to the total salaries of all
participants. The Company did not accrue a profit sharing contribution for the
nine months ended September 30, 2008 and 2007.
10.
ROYALTY
COMMITMENTS
In August
2006, the Company obtained a license to use certain marks of a licensor in
connection with products that the Company sells. The agreement is set to expire
on April 30, 2010 and calls for royalties based on the number of products sold.
The agreement further specifies that the Company be obligated to pay the
licensor minimum guaranteed royalties as follows at September 30,
2008:
Year
|
|
Amount
|
|
Remainder
of 2008
|
|
$
|
20,000
|
|
2009
|
|
|
126,667
|
|
2010
|
|
|
50,000
|
|
Total
|
|
$
|
196,667
|
|
Royalty
expense for the nine months ended September 30, 2008 was $33,000.
11.
REDEEMABLE COMMON
STOCK
On
October 16, 2007, the Company acquired certain assets of Advanced Vehicle
Systems, LLC, a Florida Limited Liability Company (“AVS”). The Company
purchased all of AVS' designs, drawings, name and intellectual
property rights. As part of the purchase price, the Company provided the
seller a put option on 1,200,000 shares. This put option gives the seller
the right to sell up to 1,200,000 shares back to the Company for $1.25 per
share on August 1, 2009.
The
Company accounts for redeemable common stock in accordance with Emerging Issue
Task Force D-98 “Classification and Measurement of Redeemable Securities.”
Securities that are redeemable for cash or other assets are classified outside
of permanent equity if they are redeemable at the option of the holder. The
Company accretes changes in the redemption value over the period from the date
of issuance using the interest method.
LAW
ENFORCEMENT ASSOCIATES CORPORATION
Notes to
Consolidated Financial Statements
(unaudited)
12.
CONSULTING
AGREEMENTS
On May 3,
2007, the Company entered into an agreement with an entity to act as the
placement agent and financial advisor to the Company. This entity identifies
prospective purchasers of debt and/or equity securities to be issued by the
Company and prospective companies to be purchased or acquired by the Company
either by debt and/or equity securities or by assets acquired by the Company.
Pursuant to the terms of the agreement, the entity will be compensated for
successful security placements and services rendered in connection with
acquisitions by the Company upon the closing of each sale of securities by the
Company. This entity shall act as the Company’s exclusive placement agent and
exclusive financial advisor for a period of 120 days beginning on the effective
date of the agreement. Thereafter, the entity shall act as the Company’s
non-exclusive placement agent and non-exclusive financial advisor until
terminated by either party upon 10 days notice to the other party.
Upon
execution of this agreement the Company issued 130,000 shares of restricted
common stock for the entity’s due diligence and advisory efforts. Additionally,
the Company shall pay this entity a monthly fee of $5,000 until the agreement is
terminated. For the nine months ended September 30, 2008, the Company incurred
$37,412 in consulting fees. The Company terminated this agreement during the
2
nd
quarter of 2008.
In July
2007, the Company entered into an agreement with an entity to act as its public
relations firm in an effort to market the new Graffiti Cam. The term of the
agreement is for one year commencing on August 1, 2007. The Company will pay a
monthly fee of $20,000 plus out-of-pocket costs until the agreement is
terminated. The agreement can be terminated by either party with 90 days advance
notice to the other party. For the nine months ended September 30, 2008, the
Company recognized $69,573 in consulting fees. The Company terminated this
agreement during the 1
st
quarter
of 2008.
13.
COMMITMENTS AND
CONTINGENCIES
On
September 12, 2008, the Company received a letter from the American Stock
Exchange informing the Company that it is not in compliance with Section
1003(a)(ii) of the American Stock Exchange’s Company Guide because the Company
does not have stockholders’ equity of $4,000,000 and has sustained losses from
continuing operations and net losses in three of its four most recent fiscal
years. In addition, the American Stock Exchange is requesting that
the Company reverse split its common stock. The Company was given until October
13, 2008 to submit a plan advising the AMEX of what action(s) it has taken or
will take that will bring it into compliance with the continued listing
standards identified in the letter.
The
Company’s Board of Directors has determined that it is no longer in the
Company’s best interest to maintain its listing on the American Stock Exchange,
and gave notice to the Exchange of that decision on November 5,
2008. One of the major factors in the decision was the Board’s
rejection of the Exchange’s request to implement a reverse split of LEA’s common
stock. The Board did not believe that a reverse split at this time would be
beneficial to the Company’s stockholders.
14.
LIQUIDITY AND CAPITAL
RESOURCES
The
Company’s existing line of credit matured in May 2008 with an outstanding
balance of $175,000 and the Company has been unsuccessful in refinancing this
obligation, obtaining new financing or raising additional capital. In addition,
the Company has outstanding 1,200,000 shares of redeemable common stock, which
becomes exercisable for $1.25 per share on August 1, 2009. There is no assurance
that the Company will be able to obtain additional financing or capital on
acceptable terms, if at all. If the Company is unsuccessful in its attempts,
management may be required to liquidate available assets, restructure the
company or in the extreme event, cease operations. These consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
ITEM
2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following Management Discussion and Analysis of Financial Condition is qualified
by reference to and should be read in conjunction with our Condensed
Consolidated Financial Statements and the Notes thereto as set forth in this
document. We include the following cautionary statement in this Form 10-Q for
any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, future events or performances and underlying
assumptions and other statements, which are other than statements of historical
facts. Certain statements contained herein are forward-looking statements and,
accordingly, involve risks and uncertainties, which could cause actual results
or outcomes to differ materially from those expressed in the forward-looking
statements. The Company’s expectations, beliefs and projections are expressed in
good faith and are believed by the Company to have a reasonable basis, including
without limitations, management’s examination of historical operating trends,
data contained in the Company’s records and other data available from third
parties, but there can be no assurance that management’s expectations, beliefs
or projections will result or be achieved or accomplished.
Three
Months Ended September 30, 2008 Compared to Three Months Ended September 30,
2007.
Revenues
Revenues
for the three months ended September 30, 2008, were $2,397,224 as compared to
$1,314,518 for the three months ended September 30, 2007, which represents an
increase of $1,082,706 (82.4%). The majority of the increase is due to the
recognition of a significant order during the 3
rd
quarter
as well as the Company continuing to recognize revenue from the surveillance
vehicle division.
Gross
Profit
Gross
profit for the three months ended September 30, 2008 was $946,631 as compared to
$396,451 for the three months ended September 30, 2007, an increase of $550,180.
As a percentage of net sales, our gross margin was 39.5% for the quarter as
compared to 30.2% in the same period last year. Management expected the increase
in gross margin during the 3
rd
quarter
as we continued to ship surveillance vehicle orders and obtained better
efficiencies related to the surveillance vehicle division.
Operating
Expenses
Operating
Expenses incurred for the three months ended September 30, 2008 were $783,544 as
compared to $837,528 for the three months ended September 30, 2007, a decrease
of $53,984 (6.4%). The decrease is mainly due to a significant reduction in
consulting, accounting and legal fees during the 3
rd
quarter. The Company terminated two consulting agreements. This decrease was
partially offset by an increase in amortization expense as compared to the same
period last year and a non-cash charge of $150,000 on our patents related to the
stun pistol. The increase in amortization is due to acquired intangible assets
during the 4
th
quarter
of 2007. As a percentage of revenue, total operating expenses (including
research and development expenses) was 32.7% compared to 63.7% for the
comparative period.
Income
and Earnings Per Share
Our net
income for the three months ended September 30, 2008 was $96,401 compared to a
net loss of ($266,228) for the three months ended September 30, 2007, an
increase of $362,629. This increase in net income is attributable to the factors
outlined above; despite incurring non-cash interest expense of approximately
$25,000 related to the interest accretion of the AVS put option and the non-cash
charge of $150,000 on our patents related to the stun pistol. Net income (loss)
per weighted average share was $0.00 for the three months ended September 30,
2008, as compared to ($0.01) for the three months ended September 30,
2007.
Nine
Months Ended September 30, 2008 Compared to Nine Months Ended September 30,
2007.
Revenues
Revenues
for the nine months ended September 30, 2008, were $6,225,583 as compared to
$5,091,554 for the nine months ended September 30, 2007, which represents an
increase of $1,134,029 (22.3%). The majority of the increase is due to the
recognition of a significant order during the 3
rd
quarter
as well as the Company continuing to recognize revenue from the surveillance
vehicle division.
Gross
Profit
Gross
profit for the nine months ended September 30, 2008 was $2,275,080 as compared
to $1,875,450 for the nine months ended September 30, 2007, an increase of
$399,630 (21.3%). As a percentage of net sales, our gross margin was 36.5% for
the nine months ended September 30, 2008 as compared to 36.8% in the same period
last year.
Operating
Expenses
Operating
Expenses incurred for the nine months ended September 30, 2008 were $2,229,980
as compared to $2,267,523 for the nine months ended September 30, 2007, a
decrease of $37,543 (1.7%). The decrease is mainly due to a significant
reduction in accounting and legal fees. The Company also has not incurred stock
compensation charges during 2008. These decreases were partially offset by
relocation expenses incurred during the 1
st
quarter, increased marketing efforts related to the introduction of the Graffiti
Cam System, and a non-cash charge of $150,000 on our stun pistol patents during
the 3
rd
quarter. As a percentage of revenue, total operating expenses (including
research and development expenses) was 35.8% compared to 44.5% for the
comparative period.
Income
and Earnings Per Share
Our net
loss for the nine months ended September 30, 2008 was ($51,943) compared to a
net loss of ($226,209) for the nine months ended September 30, 2007, a decrease
of $174,266. This decrease in net loss is attributable to the Company’s
performance during the 3
rd
quarter. Net income (loss) per weighted average share was ($0.00) for the nine
months ended September 30, 2008, as compared to ($0.01) for the nine months
ended September 30, 2007.
Liquidity
and Capital Resources
At
September 30, 2008, working capital was $1,773,929 as compared with $1,949,261
at December 31, 2007, a decrease of $175,332. During the 2
nd
quarter, the Company reclassified the majority of our deferred tax asset to a
non-current asset. This decrease was partially offset due to a significant
increase in accounts receivable as of the end of the 3
rd
quarter. The Company’s $750,000 line of credit with Wachovia Bank matured in May
2008. As of September 30, 2008, the Company had an outstanding balance of
$175,000. The Company is currently negotiating with other financial institutions
to secure a line of credit.
In August
2009, the put option becomes exercisable and the Company is currently developing
a plan to fund this with additional capital or borrowed funds. However, there is
no assurance the Company will be successful in these attempts and may not be
able to fund the put if it is exercised.
If we
need to obtain capital, no assurance can be given that we will be able to obtain
this capital on acceptable terms, if at all. In such an event, this may have a
materially adverse effect on our business, operating results and financial
condition. If the need arises, we may attempt to obtain funding through the use
of various types of short term funding, loans or working capital financing
arrangements from banks or financial institutions. As we generally obtain all of
our funding from operations, a decrease in revenue could negatively impact our
short and long term liquidity. A change in the current political situation or a
decrease in military spending could result in decreased sales of some of our
products.
Research
and Development
In the
nine months ended September 30, 2008, the Company incurred expenses of $52,401
on research and development as compared to $72,716 in the nine months ended
September 30, 2007.
Inflation
We
believe that the impact of inflation on our operations since our inception has
not been material.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
4T. CONTROLS AND PROCEDURES
Our chief
executive officer and chief financial officer (the “Certifying Officers”) are
responsible for establishing and maintaining disclosure controls and procedures
for our company and our subsidiary. Such officers have concluded (based upon an
evaluation of these controls and procedures as of the end of the period covered
by this report) that our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in this report is
accumulated and communicated to management, including our principal executive
officers as appropriate, to allow timely decisions regarding required
disclosure.
The
Certifying Officers have also indicated that there were no significant changes
in our internal controls or other factors that could significantly affect such
controls subsequent to the date of this evaluation, and there were no corrective
actions with regard to significant deficiencies and material
weaknesses.
Our
management, including the Certifying Officers, does not expect that our
disclosure controls or our internal controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. In addition, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within a company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by management
override of the control. The design of any systems of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Because of these inherent limitations in
a cost-effective control system, misstatements due to error or fraud may occur
and not be detected.
PART II:
OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
1A. RISK FACTORS
Our operations and financial results
are subject to various risks and uncertainties that could adversely affect our
business, financial condition, results of operations, and trading price of our
common stock. Please refer to our annual report on Form 10-KSB for fiscal year
2007 for additional information concerning these and other uncertainties that
could negatively impact the Company.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5. OTHER INFORMATION
The Company’s Board of Directors has
determined that it is no longer in the Company’s best interest to maintain its
listing on the American Stock Exchange, and gave notice to the Exchange of that
decision on November 5, 2008. One of the major factors in the
decision was the Board’s rejection of the Exchange’s request to implement a
reverse split of LEA’s common stock. The Board did not believe that a reverse
split at this time would be beneficial to the Company’s stockholders. In
addition, the Company estimates it will recognize more than $100,000 in annual
savings by returning to an Over-The-Counter Bulletin Board listing.
ITEM
6. EXHIBITS
Exhibits required by Item 601 of
Regulation S-K attached:
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Exhibits
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31.1
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Certification
of Paul Feldman Pursuant to Rule 13a-14(a)/15d-14(a)
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31.2
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Certification
of Paul Briggs Pursuant to Rule 13a-14(a)/15d-14(a)
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32.1
|
Certification
of Paul Feldman Pursuant to Rule 13a-14(b) or Rule 15d-14(c) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section
1350
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32.2
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Certification
of Paul Briggs Pursuant to Rule 13a-14(b) or Rule 15d-14(c) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section
1350
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SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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Law
Enforcement Associates Corporation
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By:
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/s/ Paul
Feldman
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Paul
Feldman
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President
and Chief Executive Officer
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/s/ Paul
Briggs
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Paul
Briggs
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Chief
Financial Officer and
Principal
Accounting Officer
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22
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