SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1997
Commission File Number: 1-13427
SECURACOM, INCORPORATED
State of Incorporation: Delaware I.R.S. Employer I.D.: 22-2817302
50 Tice Boulevard
Woodcliff Lake, New Jersey 07675
(201) 930-9500
Indicate by check mark whether the registrant (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 twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes No X *
* The registrant became subject to the filing requirements of the Securities
Exchange Act of 1934 on October 1, 1997.
There were 5,834,140 shares of Common Stock, par value $0.01 per share,
outstanding at October 30, 1997.
<PAGE>
SECURACOM, INCORPORATED
Quarter ended September 30, 1997
Index
- --------------------------------------------------------------------------------
Page
Part I. Financial information
Item 1. Financial Statements............................................3
Balance Sheets as of December 31, 1996 and September 30, 1997
(unaudited)...........................................................3
Statements of Operations for the three and nine months
ended September 30, 1996 and 1997 (unaudited).........................4
Statements of Cash Flows for the nine months ended
September 30, 1996 and 1997 (unaudited)...............................5
Notes to Financial Statements.........................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................8
Part II. Other information
Item 2. Changes in Securities and Use of Proceeds.......................11
Item 6. Exhibits and Reports on Form 8-K...............................11
Signature................................................................12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SECURACOM, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996* 1997
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................. $ 609,342 $ 4,730
Accounts receivable, net of allowance for doubtful
accounts of $42,000 in 1996 and 1997..................................... 1,777,456 2,153,866
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................................... 1,148,560 4,245,394
Prepaid expenses and other................................................. 120,937 206,665
Investment in SSIH, Ltd.................................................... 700,000
-------------- --------------
Total currents assets................................................. 3,656,295 7,310,655
Plant and equipment, net...................................................... 714,989 763,422
Deferred registration costs................................................... -- 548,385
Other assets.................................................................. 195,803 212,706
-------------- --------------
$ 4,567,087 $ 8,835,168
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of capital lease obligations $ 21,454 $ 48,863
Accounts payable........................................................... 2,739,271 5,279,861
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................................... 103,184 80,755
Accrued expenses and other................................................. 641,506 895,444
-------------- --------------
Total current liabilities............................................. 3,505,415 6,304,923
Long-term liabilities:
Notes payable.............................................................. 2,541,000 3,210,500
Capital lease obligations, less current maturities 116,399 211,341
Stockholders' equity (deficiency):
Common stock, $0.01 par value per share; authorized
20,000,000 shares; issued and outstanding
4,434,140 shares in 1996 and 1997........................................ 44,341 44,341
Additional paid-in capital................................................. 10,582,197 10,644,197
Accumulated deficit........................................................ (12,222,265) (11,580,134)
----------- -----------
(1,595,727) (891,596)
-------------- -----------
$ 4,567,087 $ 8,835,168
============== ==============
</TABLE>
* Derived from audited financial statements as of December 31, 1996.
The accompanying notes are an integral part of these statements.
3
<PAGE>
SECURACOM, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Earned revenues.................................. $ 1,136,064 $ 4,182,763 $ 3,066,534 $ 11,422,961
Cost of earned revenues.......................... 927,333 3,006,339 2,172,916 8,216,515
------------- ------------ ------------- --------------
Gross profit................................ 208,731 1,176,424 893,618 3,206,446
Selling, general and administrative
expenses.................................... 854,072 876,098 2,794,751 2,256,627
------------- ------------ ------------- --------------
Operating income (loss).......................... (645,341) 300,326 (1,901,133) 949,819
Interest and financing fees...................... (55,973) (111,711) (132,656) (343,488)
Interest and other income........................ 2,693 24,082 4,375 35,800
------------- ------------ ------------- --------------
Net income (loss)........................... $ (698,621) $ 212,697 $ (2,029,414) $ 642,131
============= ============ ============= ==============
Weighted average common shares
outstanding................................. 4,417,000 4,605,000 4,417,000 4,605,000
============= ============ ============= ==============
Net income (loss) per share...................... $ (.16) $ .05 $ (.46) $ .14
============= ============ ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SECURACOM, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1997
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................... $ (2,029,414) $ 642,131
-------------- ----------------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization......................................... 48,750 99,958
Noncash compensation.................................................. 28,000 --
Amortization of debt discount......................................... 7,000 31,500
Changes in operating assets and liabilities:
Accounts receivable..................................................... 252,856 (376,410)
Costs and estimated earnings in excess of
billings on uncompleted contracts..................................... 303,919 (3,096,834)
Prepaid expenses and other.............................................. 1,504 (85,728)
Other assets............................................................ (821) (16,903)
Accounts payable........................................................ 554,386 2,540,590
Billings in excess of costs and estimated earnings
on uncompleted contracts.............................................. (287,148) (22,429)
Accrued expenses and other.............................................. 112,708 253,938
--------------- ----------------
Total adjustments................................................... 1,021,154 (672,318)
--------------- ----------------
Net cash from operating activities.................................. (1,008,260) (30,187)
---------- ----------------
Cash flows from investing activities:
Investment in SSIH, Ltd................................................. -- (700,000)
Acquisition of plant and equipment...................................... (269,534) (5,044)
--------------- ---------------
Net cash used by investing activities................................... (269,534) (705,044)
--------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable............................................. 815,000 700,000
Principal payments on notes payable--stockholder........................ (200,000)
Principal payments of capital lease obligations......................... (14,389) (20,996)
Deferred registration costs............................................. -- (548,385)
Proceeds from issuance of common stock and
exercise of warrants.................................................. 204,000 --
--------------- ----------------
Net cash provided by financing activities............................... 824,611 130,619
--------------- ----------------
Net (decrease) in cash and cash equivalents................................ (453,183) (604,612)
Cash and cash equivalents at beginning of period........................... 555,34 609,342
--------------- ----------------
Cash and cash equivalents at end of period................................. $ 102,162 $ 4,730
=============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited balance sheet as of September 30, 1997 and the unaudited
statements of operations and statements of cash flows for the nine months ended
September 30, 1996 and 1997 are condensed financial statements in accordance
with the rules and regulations of the Securities and Exchange Commission.
Accordingly, they omit certain information included in complete financial
statements and should be read in conjunction with the financial statements and
notes contained in a registration statement on Form S-1 which the Company filed
with the Securities and Exchange Commission on October 1, 1997.
In the opinion of the Company, the unaudited financial statements at
September 30, 1997 and for the nine months ended September 30, 1996 and 1997,
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for such periods. Results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of results to be expected for
the full year.
2. Income (Loss) Per Share
Net income (loss) per common share is calculated by dividing the net
income (loss) by the weighted average number of shares of common stock
outstanding. Except as noted in the following paragraph, stock warrants have not
been included in the calculation as their inclusion would be antidilutive.
Warrants issued for the purchase of shares of Common Stock at an
exercise price below the initial public offering price of $8.50 per share during
the 12 months preceding the date of the Company's initial filing of a
registration statement with the Securities and Exchange Commission have been
included in the number of weighted average shares outstanding for all periods
presented calculated abased on the treasury stock method.
The Company believes that the implementation of Statement of Financial
Accounting Standards 128, Earnings Per Share, will not have a material impact on
the calculation of earnings per share.
3. Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts at December 31
1996 and September 30, 1997 which are expected to be collected within one year
are as follows;
<TABLE>
<CAPTION>
December 31, September 30.
1996 1997
--------------- ---------------
<S> <C> <C>
Costs incurred on contracts.................................................. $ 32,222,489 $ 12,632,437
Estimated earnings........................................................... 3,889,963 4,359,792
--------------- ---------------
36,112,452 16,992,229
Less billings to date........................................................ 35,067,076 12,827,590
--------------- ---------------
$ 1,045,376 $ 4,164,639
=============== ===============
</TABLE>
6
<PAGE>
4. Initial Public Offering
The Company completed an initial public offering of 1,920,000 shares of
its Common Stock in October 1997, of which 1,400,000 shares were sold by the
Company and 520,000 shares were sold by an existing shareholder. The sale
provided net proceeds to the Company of $10.0 million. The underwriters also
purchased an additional 288,000 share pursuant to their over-allotment option.
The stockholder received all of the net proceeds of the sale of shares pursuant
to the over-allotment option.
With the use of proceeds the Company repaid its outstanding notes
payable of $3.4 million.
5. Investment in SSIH
Immediately following the initial public offering, the Company's
limited partnership interest in SSIH was redeemed for $700,000 cost plus
interest of $23,712.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion and analysis of the Company's financial condition and
historical results of operations should be read in conjunction with the
condensed financial statements and the related notes thereto included elsewhere
in this report.
Overview
The Company is a single-source provider of comprehensive,
technology-based security solutions for medium and large commercial and
government facilities in the United States and abroad. The Company offers a
broad range of services, including: (i) consulting and planning; (ii)
engineering and design; (iii) systems integration; and (iv) maintenance and
technical support.
The Company derives its revenues primarily from long-term, fixed-price
contracts. Earnings are recognized based upon the Company's estimates of the
cost and percentage of completion of individual contracts. Earned revenues equal
the project's total contract amount multiplied by the proportion that direct
project costs incurred on a project bear to estimated total project costs.
Project costs include direct labor and benefits, direct material, subcontract
costs, project related travel and other direct expenses.
Clients are invoiced based upon negotiated payment terms for each
individual contract. Terms usually include a 25% downpayment and the balance as
stages of the work are completed. Maintenance contracts are billed either in
advance, monthly, or quarterly. As a result, the Company records as an asset
costs and estimated earnings in excess of billings and as a liability billings
in excess of costs and estimated earnings.
Results of Operations
The following table sets forth the percentages of earned revenues
represented by certain items reflected in the Company's statements of
operations.
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Earned Revenues...................................................... 100.0% 100.0% 100.0% 100.0%
Cost of earned revenues.............................................. 81.6 71.9 70.9 71.9
------ ------ ------ ------
Gross profit...................................................... 18.4 28.1 29.1 28.1
Selling, general and administrative expenses......................... 75.2 21.0 91.1 19.8
------ ------ ------ ------
Operating income (loss)........................................... (56.8) 7.1 (62.0) 8.3
Interest and financing fees.......................................... (4.9) (2.6) (4.3) (3.0)
Interest and other income............................................ 0.2 0.6 0.1 0.3
------ ------ ------ ------
Net income (loss)................................................. (61.5)% 5.1% (66.2)% 5.6%
====== ====== ====== ======
</TABLE>
Three Months Ended September 30, 1997 Compared With Three Months Ended
September 30, 1996
Revenues increased by 268.2% from $1.1 million in the three months
ended September 30, 1996 to $4.2 million in the three months ended September 30,
1997. The increase was due to work completed for new clients and an increase in
work completed on existing projects. Revenues from the World Trade Center
project, which commenced in October 1996, were $2.9 million in the 1997 period.
In addition, revenues from the Metropolitan Washington Airport Authority
increased from $0.4 million in the 1996 period to $0.5 million in the 1997
period.
Cost of earned revenues increased from $0.9 million in the three months
ended September 30, 1996 to $3.0 million in the three months ended September 30,
1997, primarily due to the increase in revenues. Gross margin increased from
18.4% in the 1996 period to 28.1% in the 1997 period.
Selling, general and administrative expenses remained substantially
constant at $0.8 million in the three months ended September 30, 1997. As a
percentage of revenues, they decreased from 75.2% in the 1996 period to 21.0% in
the 1997 period due to the increase in revenues.
Interest expense and financing fees increased 99.6% from $0.05 million
in the three months ended September 30, 1996 to $0.1 million in the three months
ended September 30, 1997 due to an increase in outstanding indebtedness
resulting from the issuance of $2.1 million of subordinated debentures during
1996 and $0.7 million of subordinated debentures during the first six months of
1997.
Net income increased from a net loss of $0.7 million in the three
months ended September 30, 1996 to net income of $0.2 million in the three
months ended September 30, 1997. This increase in net income was primarily due
to the significant increase in revenues while selling, general and
administrative expenses remained substantially constant.
9
<PAGE>
Nine Months Ended September 30, 1997 Compared With Nine Months Ended
September 30, 1996
Revenues increased by 272.5% from $3.1 million in the nine months ended
September 30, 1996 to $11.4 million in the nine months ended September 30, 1997.
The increase was due to work completed for new clients and an increase in work
completed on existing projects. Revenues from the World Trade Center project,
which commenced in October 1996, were $7.1 million in the 1997 period. In
addition, revenues from the Metropolitan Washington Airport Authority increased
from $0.8 million in the 1996 period to $2.1 million in the 1997 period. In
addition, $0.1 million of revenue was recognized in the 1997 period on a project
for which all of the costs were accrued during 1996.
Cost of earned revenues increased from $2.2 million in the nine months
ended September 30, 1996 to $8.2 million in the nine months ended September 30,
1997, primarily due to the increase in revenues. Gross margin declined from
29.1% in the 1996 period to 28.1% in the 1997 period. The reason for the decline
in gross margin is that in the 1996 period there was a one-time adjustment of
$0.2 million to the cost of earned revenues to reflect a reduction in a
subcontractor's costs upon the final closeout of the TVA project. Net of this
adjustment, gross margin was 21.6% in the 1996 period.
Selling, general and administrative expenses decreased by 19.3% from
$2.8 million in the nine months ended September 30, 1996 to $2.3 million in the
nine months ended September 30, 1997, primarily due to a $0.3 million reduction
in legal fees relating to certain litigation and $0.2 million reduction in
indirect labor costs.
Interest expense and financing fees increased 158.9% from $0.1 in the
nine months ended September 30, 1996 to $0.3 million in the nine months ended
September 30, 1997 due to an increase in outstanding indebtedness resulting from
the issuance of $2.1 million of subordinated debentures during 1996 and $0.7
million of subordinated debentures during the first six months of 1997.
Net income increased from a net loss of $2.0 million in the nine months
ended September 30, 1996 to net income of $0.6 million in the nine months ended
September 30, 1997. This increase in net income was primarily due to the
significant increase in revenues and the decrease in selling, general and
administrative expenses.
Liquidity and Capital Resources
Prior to the initial public offering (the "IPO") of its Common Stock in
October 1997, the Company's primary sources of cash were the proceeds from
private placements of Common Stock and notes from 1992 through 1995 and of
subordinated debentures and warrants during 1995 and 1996. During each of those
years, the Company's operations had negative cash flows as the Company increased
its marketing efforts, opened new offices and hired additional staff to support
anticipated growth. The net use of cash from operations in 1994, 1995, and 1996
was $1.9 million, $1.9 million and $1.6 million, respectively, and for the nine
months ended September 30, 1997 was $0.03 million.
From 1992 through 1995, members of a private investor group purchased
an aggregate of 3.6 million shares of Common Stock at a total purchase price of
$8.3 million, generating net proceeds to the Company of $8.0 million, and $0.5
million aggregate principal amount of 10% demand notes, generating an equal
amount of net proceeds to the Company. The demand notes were converted in 1995
into 103,000 shares of Common Stock.
10
<PAGE>
In addition, from 1995 through March 31, 1997, members of the same
investor group purchased $3.4 million aggregate principal amount of 10%
subordinated debentures, together with warrants to purchase 478,580 shares of
Common Stock at an exercise price of $7.00 per share, generating net proceeds to
the Company of $3.2 million. In 1996, an additional $0.2 million was raised
through the exercise of warrants by members of the Board of Directors.
In October 1997, the Company completed the IPO, which resulted in net
proceeds to the Company of approximately $10.0 million after payment of offering
expenses by the Company. Following the IPO, the Company's interest in a
partnership was redeemed at its cost of $0.7 million plus interest of $0.02
million. In addition, in October 1997, the Company used proceeds of the IPO to
repay $3.4 million of outstanding notes payable.
The Company's anticipated capital requirements include approximately
$0.4 million to open two new regional offices during 1997, $1.0 million to
expand and upgrade its management information systems and $1.0 million to
further develop and document its command center integration software.
The Company intends to fund these requirements with proceeds from the
IPO and other available working capital.
The Company has in the past experienced cash flow shortages. The
Company believes that the net proceeds of the IPO and cash generated from future
operations will enable it to meet its cash requirements for the foreseeable
future and enable it to pursue its current plans for expansion.
11
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The Company's Registration Statement on Form S-1 (File No. 333-26439)
relating to the initial public offering (the "Offering") of an aggregate of
2,208,000 shares (the "Shares") of its Common Stock, par value $0.01 per share,
was declared effective by the Securities and Exchange Commission on October 1,
1997. Of the 2,208,000 shares of Common Stock registered under the Registration
Statement, 1,400,000 were sold by the Company and 808,000 were sold by a
stockholder of the Company that owns more than 10% of the Company's outstanding
Common Stock (the "Selling Stockholder"). The 808,000 shares sold by the Selling
Stockholder included 288,000 shares sold upon exercise of an over-allotment
option granted to the underwriters of the Offering. The managing underwriters of
the Offering were Cruttenden Roth Incorporated and Scott & Stringfellow, Inc.
(the "Representatives").
The Offering commenced on October 1, 1997, and the sale of the Shares
was completed on October 7, 1997. The Shares were sold at a price of $8.50 per
share, for aggregate proceeds of $11,900,000 and $6,868,000 to the Company and
the Selling Stockholder, respectively. After deducting underwriting discounts
and commissions of $0.7225 per share and a $408,000 non-accountable expense
allowance paid to the Representatives (of which $297,500 was paid by the Company
and $110,500 was paid by the Selling Stockholder), the Selling Stockholder
received net proceeds of $6,173,720 and the Company received net proceeds of
$10,591,000 less expenses incurred in connection with the Offering, all of which
were paid or are payable by the Company. On October 7, 1997, the Company also
issued to the Representatives, at a purchase price of $0.001 per warrant,
warrants to purchase up to an aggregate of 140,000 shares of Common Stock.
The Registration Statement became effective on October 1, 1997, after
the September 30, 1997 ending date for the period covered by this report. The
amount of expenses incurred by the Company in connection with the Offering, and
the application by the Company of the net proceeds received by the Company in
the Offering, will be disclosed as required by Rule 463 under the Securities Act
of 1933, as amended, in the Company's periodic report for the fiscal year ending
December 31, 1997 and, to the extent necessary, in subsequent periodic reports
filed by the Company pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
11.1 Calculation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
b. Reports on Form 8-K.
None
12
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECURACOM INCORPORATED
/s/ LARRY M. WEAVER
- -----------------------------------------------------
Larry M. Weaver
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
November , 1997
13
EXHIBIT 11
Calculation of Weighted Average Shares
Outstanding for Net Income (Loss) Per Share
<TABLE>
<CAPTION>
September 30,
1996 1997
------------ ------------
<S> <C> <C>
Earnings:
Net Income (Loss)................................................................ $ (2,029,414) $ 642,131
============ =============
Shares:
Weighted Average Number of Common Shares
Outstanding................................................................... 4,293,230 4,434,140
Additional Shares Under Treasury Stock Method
from Warrants Issued 12 Months Prior to 9/30/97............................... 123,279 170,674
------------ -------------
Average Common Shares Outstanding and Equivalents................................ 4,416,509 4,604,814
============ =============
Earnings (Loss) Per Share........................................................ $ (0.46) $ 0.14
============ =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,730
<SECURITIES> 0
<RECEIVABLES> 2,195,833
<ALLOWANCES> (42,000)
<INVENTORY> 0
<CURRENT-ASSETS> 7,310,655
<PP&E> 1,140,857
<DEPRECIATION> (377,435)
<TOTAL-ASSETS> 8,835,168
<CURRENT-LIABILITIES> 6,304,923
<BONDS> 3,210,500
0
0
<COMMON> 44,341
<OTHER-SE> (935,937)
<TOTAL-LIABILITY-AND-EQUITY> 8,835,168
<SALES> 11,422,961
<TOTAL-REVENUES> 11,422,961
<CGS> 8,216,515
<TOTAL-COSTS> 8,216,515
<OTHER-EXPENSES> 2,256,627
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343,488
<INCOME-PRETAX> 642,131
<INCOME-TAX> 0
<INCOME-CONTINUING> 642,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 642,131
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0
</TABLE>
