SECURITIES EXCHANGE ACT OF 1934
Release No. 49364 / March 4, 2004

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1967 / March 4, 2004

ADMINISTRATIVE PROCEEDING
File No. 3-11421


In the Matter of

DT INDUSTRIES INC.,

Respondent.


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ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934.

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against DT Industries Inc. ("DTI").

II.

In anticipation of the institution of these proceedings, DTI has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, without admitting or denying the findings contained in this Order Instituting Cease-and-Desist Proceedings, Making Findings and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), except as to the Commission's jurisdiction over it and the subject matter of these proceedings, as set forth below.

III.

On the basis of this Order and Respondent's Offer, the Commission finds that:

Respondent

1. DTI is a Delaware corporation and is headquartered in Dayton, Ohio. DTI is a designer and manufacturer of automated production systems used to package, test and manufacture a variety of industrial and consumer products. DTI's stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and has been listed on the NASDAQ National Market since 1994.

Other Relevant Entities

2. During the relevant period, Kalish Inc., ("Kalish") headquartered in Montreal, Canada, was a DTI subsidiary which designed and manufactured liquid filling and tablet packaging systems. Kalish was closed in late 2002.

3. During the relevant period, Sencorp Systems Inc., ("Sencorp") headquartered in Hyannis, Massachusetts, was a DTI subsidiary which designed and manufactured plastics processing equipment and packaging equipment and systems. Sencorp is currently doing business as DT Converting Technologies.

4. During the relevant period, Assembly Machines Inc., ("AMI") headquartered in Erie, Pennsylvania, was a DTI subsidiary which designed and manufactured high-speed assembly systems. AMI was closed in early 2003.

Improper Accounting Entries

5. From July 1996 through June 2000, the former controller of Kalish failed to properly recognize costs associated with various projects in order to reach projected earnings. He then hid those costs in various accounts on Kalish's books such as inventory, costs and earnings in excess of billings, prepaid expenses and deferred tax accounts. The effect of these improper entries on Kalish's books was to understate cost of sales thereby resulting in both material overstatements of DTI's consolidated net income and material understatements of DTI's consolidated net losses in its quarterly and annual reports for fiscal years 1997, 1998 and 1999 and its quarterly reports for fiscal year 2000 as set forth in Paragraph 13 of this Order.

6. From July 1999 through June 2000, the former controller, cost accountant and general ledger accountant at Sencorp, in order to reach projected earnings, failed to properly recognize costs associated with various projects and recorded improper accounting entries that inflated Sencorp's gross profits. The effect of these improper entries on Sencorp's books was to understate cost of sales thereby resulting in both material overstatements of DTI's consolidated net income and material understatements of DTI's consolidated net losses in its quarterly reports for fiscal year 2000 as set forth in Paragraph 13 of this Order.

7. From July 1998 through February 2002, the former controller of AMI failed to properly recognize costs associated with various projects in order to reach projected earnings. He then hid those costs in an asset account known as "Costs and Estimated Earnings in Excess of Amounts Billed." The effect of these improper entries on AMI's books was to understate cost of sales thereby resulting in both material overstatements of DTI's consolidated net income and material understatements of DTI's consolidated net losses in its quarterly and annual reports for fiscal years 1999, 2000 and 2001 and its quarterly reports for fiscal year 2002 as set forth in Paragraph 14 of this Order.

Inadequate Internal Controls

8. During fiscal year 1997 through the third quarter of fiscal year 2002, DTI's internal accounting controls were deficient. As a result of numerous acquisitions, consolidations, rapid promotions, changes in personnel and shared responsibilities, DTI failed to devise and maintain an adequate system of internal accounting controls.

9. During fiscal year 1997 through the third quarter of fiscal year 2002, DTI had deficient cost accounting systems. The various DTI subsidiaries were operating on different accounting systems which made DTI's efforts to consolidate, audit and supervise results very difficult. Prior to June 1999, there was no formal cost accounting system at Kalish. Although Sencorp implemented an automated operating system to handle its cost accounting, the system did not function properly during the relevant time periods. The implementation of the system was premature and because of a lack of internal controls and proper training the system did not record costs accurately. In addition, at AMI the cost accounting system did not interface with the general ledger. The lack of interface necessitated manual journal entries to the general ledger, thereby creating the opportunity for false adjustments.

10. During fiscal years 1997 though the third quarter of fiscal year 2000, DTI failed to conduct analytical reviews of its subsidiaries' financial performance. DTI monitored its subsidiaries based upon the monthly financial reports submitted by the controllers of each individual subsidiary. Upon receiving the monthly financial reports from the subsidiaries, the information was merely consolidated without conducting any analytical tests of the financial results.

11. During fiscal years 1997 through the third quarter of fiscal year 2000, DTI's Internal Audit Department had inadequate practices and procedures. DTI's procedures did not require the Internal Audit Department to conduct routine operational and system audits to determine whether the financial reporting of DTI's subsidiaries was accurate. Furthermore, DTI's Internal Audit Department did not regularly assess whether DTI's policy and procedure manual was being followed by its subsidiaries. Only once between fiscal year 1997 and the third quarter of fiscal year 2000 did the Internal Audit Department assess DTI's subsidiaries' compliance with the policy and procedures manual.

12. In response to DTI's first restatement in October 2000 DTI began to tighten internal controls and improve its financial reporting system. Despite the policies that were being implemented to tighten internal controls and financial reporting, certain controls that had not yet been changed remained deficient. For two years, from January 2000 to January 2002, there was no independent president or general manager at AMI. During this time the same individual was acting as both controller and general manager of AMI, operating unsupervised at the subsidiary level. As a result, the conduct of the AMI controller went undetected.

Effect On DTI's Consolidated Financial Statements

13. As a result of the DTI internal control deficiencies and the conduct at Kalish and Sencorp described above, DTI's consolidated financial statements included materially misstated cost of sales, gross profit and net income amounts for fiscal years 1997, 1998, 1999 and the first three quarters of fiscal year 2000. For fiscal year 1997, DTI's annual report contained an overstatement of net income by $1.6 million or 6%. For fiscal year 1998, DTI's annual report contained an overstatement of net income by $4.0 million or 13%. For fiscal year 1999, DTI's annual report contained an understatement of net loss by $3.4 million or 191%. For the first quarter of fiscal year 2000, DTI's quarterly report contained an understatement of net loss by $1.8 million or 532%, for the second quarter, the quarterly report contained an overstatement of net income by $1.7 million or 201%, and for the third quarter the quarterly report contained an overstatement of net income by $1.6 million or 60%. DTI included its misleading financial results in press releases and its filings with the Commission relating to these periods. In October 2000, DTI issued restated financial statements that reflected the above changes necessitated by the improper accounting entries at Kalish and Sencorp and DTI's inadequate internal controls.

14. DTI's continuing internal control deficiencies and the conduct at AMI described above resulted in further material misstatements in DTI's cost of sales, gross profit and net income in its restated financial statements for fiscal years 1999, and additional material misstatements in its cost of sales, gross profit and net income amounts in its consolidated financial statements for fiscal years 2000, 2001 and the first three quarters of fiscal year 2002. For fiscal year 1999, DTI's restated annual report contained an additional understatement of net loss by $1.4 million or 27%. For fiscal year 2000, DTI's annual report contained an understatement of net loss by $833,000 or 18%. For fiscal year 2001, DTI's annual report contained an understatement of net loss by $1.7 million or 2.4%. For the first quarter of fiscal year 2002, DTI's quarterly report contained an overstatement of net income by $250,000 or 29%, for the second quarter the quarterly report contained an understatement of net sales of $560,000, and an overstatement of net loss by $200,000 or 18%, for the third quarter the quarterly report contained an understatement of net loss by $142,000 or 1%. DTI included its misleading financial results in press releases and its filings with the Commission relating to these periods. In August 2002, DTI issued restated financial statements that reflected the above additional changes necessitated by the improper accounting entries at AMI and DTI's inadequate internal controls.

DTI Violated Sections 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 Thereunder

15. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers whose securities are registered with the Commission under Section 12 of the Exchange Act to file with the Commission quarterly and annual reports. These reports are required to be complete and accurate. SEC v. Savoy Industries, Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). In addition, Rule 12b-20 further requires that all reports filed with the Commission include any additional material information that is necessary to make the reports, in light of the circumstances under which they were made, not misleading.

16. As result of the conduct described above, DTI, through its former subsidiary employees, violated Section 13(a) of the Exchange Act and Rule 13a-1, 13a-13 and 12b-20 by filing false and misleading annual and quarterly reports with the Commission that misrepresented DTI's financial results.

DTI Violated Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 Thereunder

17. Section 13(b)(2)(A) of the Exchange Act requires issuers whose securities are registered under Section 12 of the Exchange Act to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer…" Rule 13b2-1 of the Exchange Act provides that no person shall, directly, or indirectly, falsify or cause to be falsified, any book, record or account subject to Section 13(b)(2)(A).

18. As a result of the conduct described above, DTI, through its former subsidiary employees, violated Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder by failing to keep books, records and accounts that accurately and fairly reflected DTI's assets and financial results and by directly or indirectly, falsifying or causing to be falsified DTI's books, records and accounts.

DTI Violated Sections 13(b)(2)(B) and 13(b)(5) of the Exchange Act

19. Section 13(b)(2)(B) of the Exchange Act requires issuers whose securities are registered under Section 12 of the Exchange Act to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting practices ("GAAP"). Section 13(b)(5) of the Exchange Act provides that no person shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or account described in Section 13(b)(2).

20. As a result of the conduct described above, DTI violated Section 13(b)(2)(B) and Section 13(b)(5) of the Exchange Act by failing to devise and maintain a system of adequate internal accounting controls and by failing to implement a system of internal accounting controls; or, through several former subsidiary employees, by knowingly circumventing a system of internal accounting controls or by knowingly falsifying DTI's books, records and accounts.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in DTI's Offer.

Accordingly, it is hereby ORDERED:

A. Pursuant to Section 21C of the Exchange Act, that DTI cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.

By the Commission.

Jonathan G. Katz
Secretary