SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,D.C. 20549
---------------------
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 January 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-12873
-------
FIRECOM,INC.
----------------------------------------------------
(Exact name of Small Business Issuer in its charter)
New York 13-2934531
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization)
39-27 59th Street, Woodside, New York 11377
- --------------------------------------------------------------------
(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 March 11, 1996, the Registrant had 4,714,876 shares of
Common Stock outstanding.
<PAGE>
INDEX
Page
----
PART I Financial Information
Item 1: Financial Statements
Consolidated Balance Sheet-January 31, 1996 3-4
Consolidated Statements of Income-
Three Months and Nine Months Ended
January 31, 1996 and 1995 5-6
Consolidated Statement of Cash Flows-
Nine Months Ended January 31, 1996 and 1995 7
Notes to Consolidated Financial Statements 8-10
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-13
PART II Other Information 14
2
<PAGE>
Firecom, Inc. and Subsidiaries
Consolidated Balance Sheet
(unaudited)
January 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,955,000
Accounts receivable, net of allowance for doubtful
accounts of $326,000 3,747,000
Inventories 1,034,000
Deferred tax asset 440,000
Prepaid expenses and other 76,000
-------------
Total current assets 7,252,000
-------------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $683,000 473,000
-------------
OTHER ASSETS:
Product enhancement, less accumulated amortization
of $370,000 139,000
Prepaid loan fees 34,000
-------------
Total other assets 173,000
-------------
$7,898,000
-------------
3
<PAGE>
Firecom, Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
(unaudited)
January 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable-related parties $ 37,000
Current portion of notes payable, other 114,000
Accounts payable 334,000
Accrued expenses 1,036,000
Income taxes payable 209,000
-------------
Total current liabilities 1,730,000
-------------
LONG-TERM LIABILITIES:
Notes payable, other 936,000
Accrued compensation 76,000
Deferred tax liabilities 66,000
-------------
Total long-term liabilities 1,078,000
-------------
MANDATORILY REDEEMABLE COMMON STOCK 590,000
SHAREHOLDERS' EQUITY
Preferred stock, par value $1;authorized
1,000,000 shares, none issued --
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 5,281,037; outstanding 4,731,543 52,000
Additional paid-in capital 1,737,000
Retained earnings 1,758,000
-------------
4,984,000
Less treasury stock, at cost 484,000
-------------
Total shareholders' equity 4,500,000
-------------
$7,898,000
-------------
4
<PAGE>
Firecom, Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
Three months ended Nine Months Ended
January 31 January 31
1996 1995 1996 1995
----------------------------------------------
NET SALES:
Product $2,030,000 $1,932,000 $6,257,000 $6,203,000
Service 1,622,000 1,436,000 4,753,000 4,376,000
----------------------------------------------
3,652,000 3,368,000 11,010,000 10,579,000
----------------------------------------------
COST OF SALES:
Product 1,075,000 988,000 3,580,000 3,613,000
Service 750,000 795,000 2,299,000 2,173,000
----------------------------------------------
1,825,000 1,783,000 5,879,000 5,786,000
----------------------------------------------
GROSS PROFIT 1,827,000 1,585,000 5,131,000 4,793,000
----------------------------------------------
OPERATING EXPENSES:
Selling, general and
administrative 893,000 834,000 2,649,000 2,372,000
Research and development 161,000 106,000 413,000 308,000
----------------------------------------------
Total operating expenses 1,054,000 940,000 3,062,000 2,680,000
----------------------------------------------
INCOME FROM OPERATIONS 773,000 645,000 2,069,000 2,113,000
----------------------------------------------
OTHER EXPENSES
Interest 22,000 38,000 72,000 158,000
Other 2,000 3,000 7,000 6,000
----------------------------------------------
24,000 41,000 79,000 164,000
----------------------------------------------
INCOME BEFORE INCOME TAX
EXPENSE 749,000 604,000 1,990,000 1,949,000
INCOME TAX EXPENSE 346,000 243,000 948,000 582,000
----------------------------------------------
NET INCOME 403,000 361,000 1,042,000 1,367,000
PREFERRED STOCK DIVIDENDS 32,000 32,000 97,000 97,000
----------------------------------------------
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS 371,000 329,000 945,000 1,270,000
----------------------------------------------
5
<PAGE>
Firecom, Inc. and Subsidiaries
Consolidated Statements of Income(continued)
(unaudited)
Three months ended Nine Months Ended
January 31 January 31
1996 1995 1996 1995
----------------------------------------------
NET INCOME PER COMMON SHARE $ .07 $ .05 $ .17 $ .21
------- ------- ------- --------
WEIGHTED AVERAGE NUMBER OF
SHARES USED IN COMPUTING
EARNINGS PER SHARE 5,467,500 5,950,073 5,467,500 5,950,073
--------- --------- --------- ---------
6
<PAGE>
Firecom, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
January 31
1996 1995
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,042,000 $1,367,000
Adjustments to reconcile net income to net ------------------------
cash provided by operating activities:
Depreciation and amortization 59,000 55,000
Provision for doubtful accounts 199,000 167,000
Deferred income tax credits -- 113,000
Changes in operating assets and liabilities:
Increase in accounts receivable, (452,000) (586,000)
(Increase)decrease in inventories (134,000) 98,000
Increase in other current
and noncurrent assets (16,000) (67,000)
Increase in accounts payable,
accrued expenses and other 154,000 98,000
------------------------
Total adjustments (190,000) (122,000)
------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 852,000 1,245,000
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (72,000) (24,000)
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (441,000) (965,000)
Purchase of treasury shares (175,000) --
Proceeds from stock issue 87,000 --
------------------------
NET CASH USED IN FINANCING ACTIVITIES (529,000) (965,000)
------------------------
NET INCREASE(DECREASE) IN CASH 251,000 256,000
CASH:
Beginning of year 1,704,000 690,000
------------------------
End of six months $1,955,000 $ 946,000
------------------------
7
<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, 1995.
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 January 31, 1996 and the results of operations for the nine
months and three months ended January 31, 1996 and 1995 and statement
of cash flows for the nine months ended January 31, 1996 and 1995.
NOTE 2: INVENTORIES
Inventories consist of the following at January 31, 1996:
Raw materials and sub-assemblies $ 920,000
Work-in-process 114,000
----------
$1,034,000
----------
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at January 31,
1996:
Building improvements $ 343,000
Machinery and equipment 583,000
Furniture and fixtures 230,000
-----------
$1,156,000
Less accumulated depreciation and amortization 683,000
-----------
$ 473,000
-----------
NOTE 4: NOTES PAYABLE
The Company's long-term debt consists of the following at January 31,
1996:
Notes payable to related parties:
Second mortgage note and term note $ 37,000
Notes payable to banks and other:
Revolving bank note payable 300,000
First mortgage note payable 442,000
Other note payable 308,000
----------
1,087,000
Less current portion 151,000
----------
$ 936,000
----------
8
<PAGE>
NOTE 5: INCOME TAXES
The components of the Company's deferred tax assets and liabilities at
January 31, 1996 under SFAS 109 are as follows:
Federal State and City Total
------- -------------- -----
Deferred Assets:
Tax benefit attributable to:
Allowance for doubtful accounts $ 93,000 $ 61,000 $154,000
Accrued incentive bonuses 75,000 49,000 124,000
Accrued litigation 30,000 19,000 49,000
Other(warrants,SARs,inventory
and other) 68,000 45,000 113,000
--------- -------- ---------
266,000 174,000 440,000
Deferred tax liability, tax
depreciation in excess of
book depreciation (40,000) (26,000) (66,000)
--------- --------- ---------
$226,000 $148,000 $374,000
--------- --------- ---------
NOTE 6: STOCKHOLDERS' EQUITY TRANSACTIONS
As a result of prepaying the 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 beginning
June, 1995 through March, 1999. As of January 31, 1996, warrants for
249,999 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
9
<PAGE>
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:
The Company, its president, its wholly-owned subsidiaries and two other
employees (collectively the "defendants") have been named as defendants
in an action commenced by a competitor. Also named as co-defendants
are two other entities and a customer. This action arises out of the
competitors contention that only those entities approved or designated
by them may repair or alter its fire alarm and communication system.
Commenced in the United District Court for the Southern District of New
York on or about December 29, 1994, this action seeks to recover the
sum of "at least $10,000,000 to be trebled according to law", together
with attorney's fees, "punitive damages in an amount presently
undetermined", and a permanent injunction enjoining the defendants from
continuing to service the competitor's system. The plaintiff has
asserted a number of claims including those for violations of the
Sherman Antitrust Law, the Lanham Trademark Act, the Racketeer
Influenced and Corrupt Organizations Act and numerous state laws
dealing with false advertising and deceptive trade practices, tortious
interference with commercial relations and unfair competition.
Defendants have filed an Answer to plaintiff's Complaint and have
served a Demand for the Production of Documents and a Notice of
Examination Before Trial. The co-defendant customer has asserted a
cross-claim against Firecom, Inc. for contribution or indemnification.
While it is not possible at this preliminary stage to determine
possible liability, if any, the Company has been advised by its
insurance carrier that "it appears the coverage of one or more of the
carrier's policy(sic) is triggered". The insurance carrier has
authorized the retention of defense counsel to represent the above-
named defendants and has agreed to pay defense costs, subject to a
reservation of rights letter. Plaintiff's motion to disqualify
defendants' counsel has been denied by Judge Thomas P. Duffy.
Plaintiff's later motion, seeking to amend its complaint, was denied in
part and granted in part. Discovery proceedings have been adjourned
while the parties explore the possibility of settlement.
10
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(unaudited)
LIQUIDITY
Net cash provided by operations for the nine months ended
January 31, 1996 was $852,000 which was used for the net repayment of
debt($441,000), toward capital expenditures($72,000) and net equity
transactions($88,000), resulting in an increase of $251,000 over that
available at April 30, 1995. The Company has a revolving line of credit
not to exceed $980,000($300,000 outstanding at January 31, 1996) and a
first mortgage of $442,000 from a major New York bank at January 31,
1996. These notes are collateralized by all the Company's assets and
are subject to certain covenants. In addition, the notes restrict the
payment of common stock dividends at any time and the payment of
preferred stock dividends until May, 1996. As of January 31, 1996,
preferred dividends in arrears were approximately $714,000.
The mortgage note is due July 8, 1999 and bears interest at
10.2% per annum, payable monthly. The note requires 59 monthly
principal payments of $4,333.33 and a final payment of $264,333.53 on
July 8, 1999. As of January 31, 1996, the outstanding balance was
$442,000.
The revolving note bears interest at prime plus 1%.
Availability under the terms of the revolver is based upon eligible
accounts receivable. The current maximum commitment for $980,000 under
the terms of the revolving note is reduced by $140,000 each January
31st and July 31st. The commitment expires July 8, 1999. As of January
31, 1996, the outstanding balance on the revolving note was $300,000
and the interest rate in effect was prime plus 1% or 9.50%
As of January 31, 1996, the Company was indebted on a
mortgage note in the amount of $29,000 and an unsecured note in the
amount of $8,000, both bearing interest at 15%, due Firecom Holdings,
L.P.. Both notes are due April 30, 1996 and are subordinated to the
bank debt. Monthly payments of principal and interest will amount to
approximately $12,600 through maturity. All principal and interest
payments are current.
As of January 31, 1996, the Company had a five(5) year note
in the amount of approximately $308,000 due Helen May resulting from
the repurchase of shares as detailed in Note 6 of Notes to Consolidated
Financial Statements. This note, dated July 18, 1995, bears interest
at 12% per annum, payable monthly, and is subordinated to the bank
debt. Principal is payable in five(5) equal annual payments. 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.
Management believes that it will be able to maintain adequate
working capital and cash balances to meet its needs.
11
<PAGE>
RESULTS OF OPERATIONS
Consolidated sales and net income for the nine months ended
January 31, 1996 were $11,010,000 and $1,042,000 respectively as
compared to $10,579,000 and $1,367,000 for the nine months ended
January 31, 1995. For the three months ended January 31, 1996,
consolidated sales and net income were $3,652,000 and $403,000
respectively as compared to $3,368,000 and $361,000 for the three
months ended January 31, 1995. Sales for the Fire Controls division,
which sells life safety and other electronic systems for high rise
buildings, and the Company's FRCM Case-Acme subsidiary were flat for
the nine months ended January 31, 1996 over the same period for the
prior year while sales for the Company's Fire Service, Inc. subsidiary
were 13% higher. 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 $3,036,000 at January 31, 1996 as compared to $3,205,000 at
April 30, 1995. While the decrease reflects the depressed condition of
the New York market, management believes that it will be able to
maintain current revenue levels.
Operating income for the nine months and three months ended
January 31, 1996 was $2,069,000 and $773,000 as compared to $2,113,000
and $645,000 for the nine months and three months ended January 31,
1995. The decrease for the nine months ended January 31, 1996 as
compared to the nine months of the prior year reflects increases in
staff, payrolls, bad debt provisions and increased expenditures for
research and development. Gross profits as a percentage of revenues
for the nine months were 46.6% as compared to 45.3% for the same period
of the prior year. In light of the highly competitive nature of the New
York market, these results for the first nine months may not be
indicative of the results for the balance of the fiscal year.
Income tax expense was $948,000 for the nine months ended
October 31, 1995 as compared to $582,000 for the same period of the
prior. This reflects the fact that Net Operating Loss Carry-forwards
were fully utilized in the prior year.
Significant changes in balance sheet items from April 30, 1995 to
January 31, 1996 are highlighted as follows:
1: Accounts receivable increased due to a combination of increased
sales and slower collections.
2: Inventories increased as a result of stocking requirements for
current jobs.
3: The increase in Property, plant and equipment reflects the
acquisition of equipment.
4: The net reduction in debt resulted from scheduled payments and
the reductions in the revolving line-of-credit outstanding
together with the addition of debt related to the purchase of
treasury shares.
12
<PAGE>
5. Changes in Common stock, Capital in excess of par value,
Treasury stock and Mandatorily redeemable common stock resulted
from the exercise of warrants, the repurchase of common shares
and the commitment under an Option and Escrow Agreement as
detailed in Note 6 of the Notes to Consolidated Financial
Statements.
Interest expense for the nine months and three months ended
January 31, 1996 was approximately $72,000 and $22,000 respectively as
compared to $158,000 and $38,000 for the six months and three months
ended January 31, 1995. This decrease resulted primarily from the
reduction in outstanding debt.
13
<PAGE>
Firecom, Inc. and Subsidiaries
Part 11
Item 1: Legal Proceedings -None
-----------------
Item 2: Exhibits and Reports on Form 8-K -None
--------------------------------
Signatures
Firecom, Inc.
Date: March 11, 1996 s/s Paul Mendez
---------------------- -----------------------------
Paul Mendez
Chairman of the Board,
President and Chief Executive
Officer
Date: March 11, 1996 s/s Richard K. Nelson
---------------------- -----------------------------
Richard K. Nelson
Vice President-Finance and
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit
-------
Exhibit 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 JANUARY 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> JAN-31-1996
<CASH> 1,955
<SECURITIES> 0
<RECEIVABLES> 4,073
<ALLOWANCES> 326
<INVENTORY> 1,034
<CURRENT-ASSETS> 7,252
<PP&E> 1,156
<DEPRECIATION> 683
<TOTAL-ASSETS> 7,898
<CURRENT-LIABILITIES> 1,730
<BONDS> 0
<COMMON> 52
0
1,437
<OTHER-SE> 3,011
<TOTAL-LIABILITY-AND-EQUITY> 7,898
<SALES> 11,010
<TOTAL-REVENUES> 11,010
<CGS> 5,879
<TOTAL-COSTS> 5,879
<OTHER-EXPENSES> 2,870
<LOSS-PROVISION> 199
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 1,990
<INCOME-TAX> 948
<INCOME-CONTINUING> 1,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,042
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
