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, 1997
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
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As of September 5, 1997, the Registrant had 5,908,194 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, 1997 3-4
Consolidated Statements of Income-
Three Months Ended July 31, 1997 and 1996 5
Consolidated Statements of Cash Flows-
Three Months Ended July 31, 1997 and 1996 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
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JULY 31, 1997
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,684,000
Accounts receivable, net of allowance for
doubtful accounts of $356,000 3,802,000
Inventories 1,674,000
Deferred tax asset 466,000
Prepaid expenses and other 134,000
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Total current assets $7,760,000
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FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT $1,299,000
Less: Accumulated Depreciation & Amortization 718,000
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Total Fixed Assets $ 581,000
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OTHER ASSETS
Product Enhancement $ 669,000
Less: Accumulated Amortization 443,000
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Total Product Enhancement $ 226,000
Prepaid Loan Fees $ 19,000
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Total Other Assets $ 245,000
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TOTAL ASSETS $8,586,000
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3
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JULY 31, 1997
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 271,000
Accounts payable 621,000
Revolving Loan - Chase Bank 500,000
Accrued expenses 305,000
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Total current liabilities $1,697,000
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LONG-TERM LIABILITIES:
Notes payable $1,651,000
Accrued compensation 250,000
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Total Long-Term liabilities $1,901,000
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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 -
Common Stock, par value $.01:
Authorized 10,000,000 shares
Issued: 6,939,188 Outstanding: 5,908,194 69,000
Additional Paid-In Capital 2,765,000
Retained Earnings 2,790,000
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Sub-Total $5,624,000
Less: Treasury Stock, at cost, 1,030,994 shares 1,226,000
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Total Shareholders' Equity $4,398,000
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TOTAL LIABILITIES & EQUITY $8,586,000
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4
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED
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JULY 31
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1997 1996
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NET SALES:
Product $ 1,456,000 $ 1,907,000
Service 1,550,000, 1,598,000
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Total Sales 3,006,000 3,505,000
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COST OF SALES:
Product 979,000 1,080,000
Service 779,000 775,000
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Total Cost of Sales 1,758,000 1,855,000
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GROSS PROFIT 1,248,000 1,650,000
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OPERATING EXPENSES:
Selling, general and administrative 1,030,000 921,000
Research and development 153,000 149,000
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Total operating expenses 1,183,000 1,070,000
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INCOME FROM OPERATIONS 65,000 580,000
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OTHER EXPENSES (INCOME)
Interest 47,000 8,000
Other (3,000) 22,000
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Total Other Expenses (Income) 44,000 30,000
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INCOME BEFORE INCOME TAX 21,000 550,000
INCOME TAX EXPENSE 10,000 259,000
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NET INCOME $ 11,000 $ 291,000
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NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ 11,000 $ 284,000
NET INCOME PER COMMON SHARE $ .00 $ .05
WEIGHTED AVERAGE NUMBER OF SHARES USED
IN COMPUTING EARNINGS PER SHARE 4,818,000 5,683,000
5
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FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
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JULY 31
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,000 $ 291,000
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Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 35,000 22,000
Provision for doubtful accounts 63,000 56,000
Deferred income tax credits -0- -0-
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 475,000 (420,000)
Increase in inventories (411,000) (229,000)
Increase in other current and noncurrent assets (55,000) (99,000)
Increase (decrease) in accounts payable,
accrued expenses & other (771,000) 24,000
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Total adjustments (664,000) (646,000)
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NET CASH USED IN OPERATING ACTIVITIES (653,000) (355,000)
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (57,000) (43,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (118,000) (75,000)
Increase in debt 500,000 -0-
Preferred Stock Dividend (905,000) -0-
Proceeds from stock issue 452,000 29,000
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NET CASH USED IN FINANCING ACTIVITIES (71,000) (46,000)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (781,000) (444,000)
CASH AND CASH EQUIVALENTS:
Beginning of year 2,465,000 2,165,000
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End of three months $ 1,684,000 $ 1,721,000
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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, 1997.
In the opinion of management the accompanying consolidated financial
statements contain the necessary adjustments, all of which are of a
normal and recurring nature, to present fairly Firecom Inc. and its
subsidiaries' financial position at July 31, 1997 and the results of
operations and cash flows for the three months ended July 31, 1997 and
1996.
NOTE 2: INVENTORIES
Inventories consist of the following at July 31, 1997:
Raw materials and sub-assemblies $1,666,000
Work-in-process 8,000
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$1,674,000
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NOTE 3: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following
at July 31, 1997:
Building improvements $ 268,000
Machinery and equipment 563,000
Furniture and fixtures 468,000
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$1,299,000
Less accumulated depreciation and amortization 718,000
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$ 581,000
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NOTE 4: NOTES PAYABLE
The Company's long-term debt consists of the following
at July 31, 1997:
Notes payable to banks and other:
First mortgage note payable $ 364,000
Note payable to Norwood Venture 1,244,000
Note payable to May Family 185,000
Other note payable 129,000
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$1,922,000
Less current portion 271,000
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$1,651,000
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On June 26, 1997, the Company acquired certain service contracts
and intellectual property rights from a New York supplier of Life
Safety systems to be used by its newly incorporated subsidiary -
BRD FRCM Services. The purchase price was $285,200. $150,000 was
paid at closing of the acquisition. The balance of the purchase
price, $135,000, is payable quarterly through August 2000, with
interest of 10% per annum.
7
<PAGE>
On July 22, 1997, the Company borrowed $500,000 on its revolving
line of credit with the Chase Manhattan Bank primarily to support
the increased inventory level of its National Product.
NOTE 5: INCOME TAXES
The components of the Company's deferred tax assets and liabilities at
July 31, 1997 under SFAS 109 are as follows:
Deferred Assets:
Tax benefit attributable to:
Allowance for doubtful accounts $ 137,000
Stock appreciation rights 115,000
Accrued incentive bonuses 124,000
Inventories 86,000
Other 59,000
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521,000
Deferred tax liability, tax
depreciation in excess of book depreciation (55,000)
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$ 466,000
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NOTE 6: STOCKHOLDERS' EQUITY TRANSACTIONS
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.
On July 22, 1997, the Company exchanged all of the Series A Preferred
Stock having a liquidation preference of $1,437,000 for an aggregate
of 1,149,600 shares of the Company's common stock.
On June 11, 1997, the Board of Directors declared all of the
cumulative dividends in arrears on the Series A Preferred Stock which
approximated $905,000. These dividends were paid on July 22, 1997. In
addition, 50% of the payment was used to exercise warrants which
expired on July 31, 1997 for 377,250 share of the Company's common
stock.
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
8
<PAGE>
and fringe benefits as defined in the agreement, through April 30,
2000. At July 31, 1997, the Company has accrued $196,000 of incentive
compensation and $115,000 of accrued fringe benefits.
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, 1997
was $653,000 primarily due to an increase in inventories and a
decrease in accounts payable and accrued expenses. 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 an outstanding balance of $500,000 as of July 31, 1997) and
a first mortgage note of $429,000 at April 30, 1996 (the balance was
$364,000 as of July 31, 1997). These loan facilities are
collateralized by substantially all of the Company's assets and are
subject to certain covenants.
Availability of funds under the terms of revolving line of credit is
based on eligible accounts receivable and inventory. The initial
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,
1997 were $3,006,000 and $11,000 respectively as compared to
$3,505,000 and $291,000 for the three months ended July 31, 1996.
Sales for the Fire Controls division, which sells life safety and
other electronic systems for high rise buildings, declined by 24%
during the first quarter ending July 31, 1997 versus the same period
last year. Sales for the quarter ending July 31, 1997, for the
Company's Fire Service, Inc. subsidiary and the Company's FRCM
Case-Acme subsidiary declined versus the same period last year by 12%
and 7% respectively. These lower sales reflect the lower backlog of
orders as of April 30, 1997 versus the same period in 1996 which was
due to the poor new construction environment and highly competitive
New York market for fire protection systems and services.
The Company's backlog for its life safety and other systems totaled
$2,225,000 at July 31, 1997 as compared to $1,853,000 at April 30,
1997. The backlog for FRCM Case-Acme was $475,000 (for additions and
retrofits to its systems) at July 31, 1997 compared with a level of
$519,000 on April 30, 1997. The backlog for the Company's National
Product was $200,000 on July 31, 1997. The Company only began to
market its National Product last January. The increase in the
Company's backlog during the first quarter is encouraging but
management remains cautious about predicting continued growth in the
fiscal year. Orders continue to be booked on the Company's National
Product and management is very encouraged about future growth in this
product category.
Operating income for the three months ended July 31, 1997 was $65,000
as compared to $580,000 for the three months ended July 31, 1996. As a
percentage of revenue, the operating income for the three months ended
July 31, 1997 was 2.2% versus 16.6% in the same period in 1996. The
decrease in operating income and its percentage to revenue was
primarily due to the decline in revenues and gross profit on the
Company's life safety and service businesses and higher sales and
marketing costs to support the National Product.
9
<PAGE>
Significant changes in balance sheet items from April 30, 1997 to July
31, 1997 are highlighted as follows:
1: Cash decreased primarily to support the build in inventory on
the Company's National Product, to fund the acquisition of the
Company's new subsidiary, BRD FRCM and to pay the preferred stock
dividend. Accounts receivable decreased due to lower sales and an
improvement in collections.
2: Inventories increased as a result of stocking requirements for the
National Product.
3: The decrease in accrued expenses reflect a decline in pretax
income and the resulting decline in the management bonus accrual
and accrued corporate taxes.
4: The changes in Equity reflect the July 22, 1997 exchange of all
of the Series A Preferred Stock having a liquidation preference of
$1,437,000 for an aggregate of 1,149,600 shares of the Company's
common stock and the payment of the cumulative dividends in arrears
on this stock of approximately $905,000. 50% of the payment of the
cumulative dividend was used to exercise warrants for 377,250
shares of the Company's common stock.
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 12, 1997 /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
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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 JULY 31, 1997, 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-30-1998
<PERIOD-END> JUL-31-1997
<CASH> 1,684
<SECURITIES> 0
<RECEIVABLES> 4,158
<ALLOWANCES> 356
<INVENTORY> 1,674
<CURRENT-ASSETS> 7,760
<PP&E> 1,299
<DEPRECIATION> 718
<TOTAL-ASSETS> 8,586
<CURRENT-LIABILITIES> 1,697
<BONDS> 0
<COMMON> 69
0
0
<OTHER-SE> 4,329
<TOTAL-LIABILITY-AND-EQUITY> 8,586
<SALES> 3,006
<TOTAL-REVENUES> 3,006
<CGS> 1,758
<TOTAL-COSTS> 1,758
<OTHER-EXPENSES> 1,117
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 21
<INCOME-TAX> 10
<INCOME-CONTINUING> 11
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
