SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB-Quarterly or Transitional Report
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the quarterly period ended July 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
COMMISSION FILE NUMBER 0-12873
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FIRECOM, INC.
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(Exact name of Small Business Issuer in its charter)
New York 13-2934531
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
39-27 59th Street, Woodside, New York 11377
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(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (718) 899-6100
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 12 months and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of September 11, 1996, the Registrant had 4,881,342 shares of Common
Stock outstanding.
<PAGE>
INDEX
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet-July 31, 1996 3-4
Consolidated Statements of Income-
Three Months July 31, 1996 and 1995 5
Consolidated Statement of Cash Flows-
Three Months Ended July 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-8
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-10
PART II OTHER INFORMATION 10
2
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
(unaudited)
JULY 31, 1996
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,721,000
Accounts receivable, net of allowance for doubtful
accounts of $366,000. 4,080,000
Inventories 1,381,000
Deferred tax asset 438,000
Prepaid expenses and other 126,000
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Total current assets $ 7,746,000
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FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT, $ 1,107,000
Less: Accumulated Depreciation & Amortization 611,000
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Total Fixed Assets $ 496,000
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OTHER ASSETS
Product Enhancement $ 508,000
Less: Accumulated Amortization 395,000
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Total Product Enhancement $ 113,000
Prepaid Loan Fees $ 29,000
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Total Other Assets $ 142,000
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TOTAL ASSETS $ 8,384,000
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3
<PAGE>
FIRECOM, INC. and SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
(unaudited)
JULY 31, 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 113,000
Accounts payable 633,000
Accrued expenses 882,000
Income taxes payable 160,000
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Total current liabilities $ 1,788,000
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LONG-TERM LIABILITIES
Notes payable $ 550,000
Accrued compensation 124,000
Deferred tax liabilities 63,000
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Total Long-Term liabilities $ 737,000
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MANDATORY REDEEMABLE COMMON STOCK 590,000
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SHAREHOLDERS' EQUITY
Preferred Stock, par value $1; authorized 1,000,000
shares, none issued $ - 0 -
Series A Preferred Stock, stated value $1,197.50:
Authorized and Outstanding: 1,200 shares. 1,437,000
Common Stock, par value $.01: Authorized 10,000,000
shares. Issued: 5,245,672 Outstanding: 4,798,009. 52,000
Additional Paid-In Capital 1,621,000
Retained Earnings 2,569,000
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Sub-Total $ 5,679,000
Less: Treasury Stock, at cost, 447,663 shares 410,000
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Total Shareholders' Equity $ 5,269,000
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TOTAL LIABILITIES & EQUITY $ 8,384,000
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4
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED
------------------
JULY 31
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1996 1995
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NET SALES:
Product $ 1,907,000 $ 2,108,000
Service 1,598,000 1,456,000
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Total Sales 3,505,000 3,564,000
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COST OF SALES:
Product 1,080,000 1,233,000
Service 775,000 762,000
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Total Cost of Sales 1,855,000 1,995,000
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GROSS PROFIT 1,650,000 1,569,000
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OPERATING EXPENSES:
Selling, general and administrative 921,000 901,000
Research and development 149,000 126,000
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Total operating expenses 1,070,000 1,027,000
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INCOME FROM OPERATIONS 580,000 542,000
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OTHER EXPENSES
Interest 8,000 22,000
Other 22,000 3,000
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Total Other Expenses 30,000 25,000
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INCOME BEFORE INCOME TAX 550,000 517,000
INCOME TAX EXPENSE 259,000 243,000
NET INCOME $ 291,000 $ 274,000
======= =======
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ 284,000 $ 242,000
NET INCOME PER COMMON SHARE $ .05 $ .04
WEIGHTED AVERAGE NUMBER OF SHARES USED
IN COMPUTING EARNINGS PER SHARE 5,682,612 5,811,000
5
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
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JULY 31
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 291,000 $ 274,000
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Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 22,000 19,000
Provision for doubtful accounts 56,000 82,000
Deferred income tax credits -0- -0-
Changes in operating assets and liabilities:
(Increase) in accounts receivable, (420,000) (297,000)
(Increase) in inventories (229,000) (159,000)
(Increase) in other current and
noncurrent assets ( 99,000) ( 76,000)
Increase in accounts payable, accrued
expenses & other 24,000 197,000
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Total adjustments (646,000) (234,000)
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (355,000) 40,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 43,000) ( 45,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt ( 74,000) (345,000)
Purchase of treasury shares -0- (175,000)
Proceeds from stock issue 29,000 29,000
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NET CASH USED IN FINANCING ACTIVITIES ( 46,000) (491,000)
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NET DECREASE IN CASH (444,000) (496,000)
CASH:
Beginning of year 2,165,000 1,704,000
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End of three months $1,721,000 $1,208,000
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6
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: ACCOUNTING POLICIES:
The accounting policies followed by the Company are set forth in Note 1 of
the Company's financial statement on Form 10-KSB for the fiscal year ended
April 30, 1996.
In the opinion of management the accompanying consolidated financial
statement contains the necessary adjustments, all of which are of a normal
and recurring nature, to present fairly Firecom Inc.'s financial position
at July 31, 1996 and the results of operations for the three months ended
July 31, 1996 and 1995 and statement of cash flows for the three months
ended July 31, 1996 and 1995.
NOTE 2: INVENTORIES
Inventories consist of the following at July 31, 1996:
Raw materials and sub-assemblies $1,221,000
Work-in-process 160,000
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$1,381,000
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NOTE 3: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following
at July 31, 1996:
Building improvements $ 254,000
Machinery and equipment 561,000
Furniture and fixtures 292,000
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$1,107,000
Less accumulated depreciation and amortization 611,000
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$ 496,000
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NOTE 4: NOTES PAYABLE
The Company's long-term debt consists of the following
at July 31, 1996:
Notes payable to banks and other:
First mortgage note payable $ 417,000
Other note payable 246,000
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$ 663,000
Less current portion 113,000
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$ 550,000
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7
<PAGE>
NOTE 5: INCOME TAXES
The components of the Company's deferred tax assets and liabilities at July
31, 1996 under SFAS 109 are as follows:
State
Federal and City Total
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Deferred Assets:
Tax benefit attributable to:
Allowance for doubtful accounts $ 91,000 $ 59,000 $150,000
Accrued incentive bonuses 95,000 62,000 157,000
Other (warrants, SARs, inventory
and other) 80,000 51,000 131,000
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266,000 172,000 438,000
Deferred tax liability, tax
depreciation in excess of book
depreciation (38,000) (25,000) (63,000)
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$226,000 $147,000 $375,000
======== ======== ========
NOTE 6: STOCKHOLDERS' EQUITY TRANSACTIONS
As a result of prepaying convertible notes on July 8, 1994, the rights to
purchase 1,333,333 shares of common stock were converted to warrants at an
exercise price of $.35 per share. The warrants are exercisable immediately
with 83,333 shares expiring quarterly through March, 1999. As of July 31,
1996, warrants for 416,665 shares were exercised.
On June 21, 1995 the Company signed a Stock Purchase Agreement to purchase
536,494 shares of the Company's $.01 par value common stock held by certain
members of the May family (the "shareholders") at $.90 per share. Terms of
the agreement provide for a cash payment in the amount of $174,448 and a
five (5) year note in the amount of $308,397, bearing interest at 12% per
annum. Interest is payable monthly. The principal is to be paid in five
equal annual installments of $61,679. The purchase of these shares was
completed on July 18, 1995. The Company's obligation under the note is
secured by a pledge by the Company to the noteholder of 342,663 shares of
the Company's common stock.
At the same time, the Company and the Shareholders entered into an Option
and Escrow Agreement relative to an additional 536,495 shares of the
Company's common stock (the "Option Shares"). Under the terms of this
agreement, on September 1, 1998 the Shareholders have the right, but not
the obligation, to require the company to purchase, in whole or in part,
their Option Shares (the "Put Option") at a price of $1.10 per share. The
Put Option is conditional upon the Company meeting certain financial
targets. At any time under this agreement, the Company shall have the
right, but not the obligation, to purchase all of the Option Shares, in
whole or in part, (the "Call Option") at a purchase price of $1.25 per
share. Payment for the Put Option or the Call Option shall be one-half
(1/2) in cash and one-half (1/2) with a five (5) year note bearing interest
at prime plus 3%. Upon execution of this agreement, the Shareholders
delivered to the Company irrevocable proxies to permit Mr. Paul Mendez,
Chairman of the Company, to vote the Option Shares until the expiration of
this agreement.
NOTE 7: COMMITMENTS AND CONTINGENCIES:
On December 31, 1992, the Company entered into an employment agreement
("agreement") with the Chairman of the Company, which was amended on March
28, 1995, providing for base salary plus incentive compensation and fringe
benefits as defined in the agreement, through December 31, 1997. At July
31, 1996, the Company has accrued $189,000 of incentive compensation and
$92,000 of accrued fringe benefits.
8
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(unaudited)
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LIQUIDITY
Net cash used in operations for the three months ended July 31, 1996 was
$355,000 reflecting an increase in accounts receivable and inventories.
The Company's revolving financing agreement with a major New York bank,
dated July 8, 1994, was amended on April 1, 1996. This amendment provided
the Company with a revolving line of credit not to exceed $2 million (there
was no outstanding balance as of July 31, 1996) and a first mortgage note
of $429,000 at April 30, 1996 (the balance was $417,000 as of July 31,
1996). These loan facilities are collateralized by all of the Company's
assets and are subject to certain covenants, including a restriction on the
payment of common stock dividends at any time and the payment of perferred
dividends until April 1, 1999. As of July 31, 1996, preferred dividends in
arrears were approximately $779,000.
Availability of funds under the terms of revolving line of credit is based
on eligible accounts receivable and inventory. The inital commitment for
$2 million, under the terms of the note, is reduced by $500,000 each six
months commencing on October 1, 1999.
Management believes that it will be able to maintain adequate working
capital and cash balances to meet its current needs.
RESULTS OF OPERATIONS
Consolidated sales and net income for the three months ended July 31, 1996
were $3,505,000 and $291,000 respectively as compared to $3,564,000 and
$274,000 for the three months ended July 31, 1995. Sales for the Fire
Controls division, which sells life safety and other electronic systems for
high rise buildings, declined by 13% primarily due to reduced low margin
sub-contract work. Sales for the Company's FRCM Case-Acme subsidiary
increased by 15% during the three months ended July 31, 1996 versus the
same period for the prior year. Sales for the Company's Fire Service, Inc.
subsidiary were 4% higher than the same period in 1995. Fire Controls
generated 48% of total revenues, Fire Service 31% and FRCM Case-Acme 21%.
The Company's backlog for its life safety and other systems totaled
$3,320,000 at July 31, 1996 as compared to $2,839,000 at April 30, 1996.
The backlog for FRCM Case-Acme was $463,000 (for additions and retrofits to
its systems) at July 31, 1996 compared with a level of $339,000 on April
30, 1996. Despite the depressed economic condition and highly competitive
nature of the New York market, demand for the Company's system's.
especially in the retrofit area, and for its maintenance services remains
steady.
Operating income for the three months ended July 31, 1996 was $580,000 as
compared to $542,000 for the three months ended July 31, 1995. As a
percentage of revenue, the operating income for the three months ended July
31, 1996 was 16.6% versus 15.2% in the the same period in 1995. The
increase in operating income and its percentage to revenue was primarily
due to a higher margin mix of business.
Significant changes in balance sheet items from April 30, 1996 to July 31,
1996 are highlighted as follows:
1: Cash decreased and accounts receivable increased due to slower
collections primarily from several of the Company's major accounts.
Management has addressed the situation with all of its accounts and
expects that collections will improve during the second quarter of
the year.
2: Inventories increased as a result of stocking requirements for
current jobs in the backlog.
3: The increases in accounts payable resulted from the build-up of
inventory.
9
<PAGE>
4: The reduction in debt resulted from scheduled payments.
PART 11
Item 1: Legal Proceedings -None
Item 2: Exhibits and Reports on Form 8-K -None
SIGNATURES
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Firecom, Inc.
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Dated: September 11, 1996 /s/ Paul Mendez
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Paul Mendez
Chairman of the Board
President and Chief Executive
Officer
/s/ William J. Lazich
------------------------------
William J. Lazich
Vice President-Finance and
Chief Financial Officer
10
<PAGE>
EXHIBIT INDEX
Exhibit Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FIRECOM, INC.'S CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME AND
STATEMENT OF CASH FLOW FOR THE PERIOD ENDED JULY 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> JUL-31-1996
<CASH> 1,712
<SECURITIES> 0
<RECEIVABLES> 4,4446
<ALLOWANCES> 366
<INVENTORY> 1,381
<CURRENT-ASSETS> 7,746
<PP&E> 1,107
<DEPRECIATION> 611
<TOTAL-ASSETS> 8,384
<CURRENT-LIABILITIES> 1,788
<BONDS> 0
<COMMON> 52
0
1,437
<OTHER-SE> 3,780
<TOTAL-LIABILITY-AND-EQUITY> 8,384
<SALES> 3,505
<TOTAL-REVENUES> 3,505
<CGS> 1,855
<TOTAL-COSTS> 1,855
<OTHER-EXPENSES> 1,036
<LOSS-PROVISION> 56
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 550
<INCOME-TAX> 259
<INCOME-CONTINUING> 291
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 291
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
