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 January 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
COMMISSION FILE NUMBER 0-12873
FIRECOM, INC.
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(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 February 29, 2000, the Registrant had 5,757,935 shares of Common Stock
outstanding, and 4,985,463 shares of Class A Common Stock outstanding.
1
<PAGE>
INDEX
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PAGE NO.
---------
Safe Harbor Statement 3
PART I FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet-January 31, 2000 4-5
Consolidated Statements of Income-
Nine and Three Months Ended January 31, 2000 and 1999 6
Consolidated Statements of Cash Flows-
Nine Months Ended January 31, 2000 and 1999 7-8
Notes to Consolidated Financial Statements 9-10
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-12
PART II OTHER INFORMATION 12-13
2
<PAGE>
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-QSB for the nine months ended January 31, 2000 contains certain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995, which can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate," "should"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. The matters set forth under the captions "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Cautionary
Statements" herein constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain risks
and uncertainties, that could cause actual results to differ materially from
those in such forward-looking statements.
3
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JANUARY 31, 2000
----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,299,000
Accounts receivable, net of allowance for doubtful
accounts 4,105,000
Inventories 1,891,000
Deferred tax asset 712,000
Prepaid expenses and other current assets 279,000
-----------
Total current assets $11,286,000
-----------
FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT $ 1,716,000
Less: Accumulated Depreciation & Amortization 1,101,000
-----------
Total Fixed Assets $ 615,000
-----------
OTHER ASSETS
Intangible assets, less accumulated amortization $ 54,000
-----------
TOTAL ASSETS $11,955,000
===========
4
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JANUARY 31, 2000
----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 367,000
Accounts payable 1,158,000
Line of credit borrowing 800,000
Accrued expenses 1,735,000
-----------
Total current liabilities $ 4,060,000
-----------
LONG-TERM LIABILITIES:
Notes payable, less current portion 757,000
Accrued compensation 355,000
Deferred tax liability 60,000
-----------
Total Long-Term liabilities $ 1,172,000
-----------
SHAREHOLDERS' EQUITY
Preferred Stock, par value $1; authorized 1,000,000
shares, none issued $ -0-
Common Stock, par value $.01: Authorized 30,000,000 shares.
Issued: 7,322,424 Outstanding: 5,754,935 73,000
Class A Common Stock, par value $.01: Authorized 10,000,000 shares.
Issued: 6,019,457 Outstanding: 4,988,463 60,000
Additional Paid-In Capital 2,793,000
Retained Earnings 5,023,000
-----------
Sub-Total $ 7,949,000
Less: Treasury Stock, at cost, 1,567,489 shares of Common Stock
and 1,030,994 shares of Class A Common Stock 1,226,000
-----------
Total Shareholders' Equity $ 6,723,000
-----------
TOTAL LIABILITIES & EQUITY $11,955,000
===========
5
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
-----------------------------------------------
JANUARY 31 JANUARY 31
---------- ----------
2000 1999 2000 1999
---- ---- ---- ----
NET SALES:
Product $ 3,030,000 $2,880,000 $ 7,983,000 $ 8,378,000
Service 2,316,000 1,679,000 6,177,000 4,848,000
--------- --------- --------- ---------
Total Sales 5,346,000 4,559,000 14,160,000 13,226,000
--------- --------- ---------- ----------
COST OF SALES:
Product 2,171,000 2,013,000 5,750,000 6,062,000
Service 1,069,000 824,000 2,917,000 2,385,000
--------- --------- --------- ---------
Total Cost of Sales 3,240,000 2,837,000 8,667,000 8,447,000
--------- --------- --------- ---------
GROSS PROFIT 2,106,000 1,722,000 5,493,000 4,779,000
--------- --------- --------- ---------
OPERATING EXPENSES:
Selling, general and
administrative 1,328,000 1,134,000 3,477,000 3,124,000
Research and development 226,000 188,000 617,000 510,000
--------- --------- --------- ---------
Total operating
expenses 1,554,000 1,322,000 4,094,000 3,634,000
--------- --------- --------- ---------
INCOME FROM OPERATIONS 552,000 400,000 1,399,000 1,145,000
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest income 57,000 44,000 150,000 148,000
Interest expense (45,000) (55,000) (142,000) (166,000)
Other (71,000) 24,000 (135,000) 86,000
--------- --------- --------- ---------
Total Other Income
(Expense) (59,000) 13,000 (127,000) 68,000
--------- --------- --------- ---------
INCOME BEFORE INCOME TAX 493,000 413,000 1,272,000 1,213,000
INCOME TAX EXPENSE 232,000 194,000 599,000 571,000
NET INCOME $ 261,000 $219,000 $,673,000 $ 642,000
========= ======= ======== =======
NET INCOME PER COMMON SHARE:
Basic $ .02 $ .02 $ .06 $ .06
Diluted $ .02 $ .02 $ .06 $ .05
WEIGHTED AVERAGE NUMBER OF
SHARES USED IN COMPUTING EPS:
Basic 10,743,400 10,743,400 10,743,400 11,229,356
Diluted 11,355,523 11,202,842 11,316,642 11,668,798
6
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FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
JANUARY 31
----------
2000 1999
------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $673,000 $ 642,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 178,000 181,000
Provision for doubtful accounts 260,000 250,000
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (787,000) (767,000)
Inventories 71,000 (371,000)
Prepaid expenses and other current assets (21,000) (88,000)
Accounts payable 118,000 459,000
Accrued expenses 138,000 283,000
Accrued compensation 120,000 (95,000)
------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 750,000 494,000
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business (123,000) -0-
Capital expenditures (92,000) (72,000)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (215,000) (72,000)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (297,000) (264,000)
Purchase of May family stock -0- (308,000)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (297,000) (572,000)
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 238,000 (150,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 4,061,000 4,204,000
--------- ---------
End of period $4,299,000 $4,054,000
========== ==========
7
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
NINE MONTHS ENDED
-----------------
JANUARY 31
----------
2000 1999
------ -----
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest during the period $150,000 $165,000
======== ========
Cash paid for income taxes during the period $675,000 $654,000
======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Note payable issued for purchase of May Common Stock $ -0- $308,000
======= ========
8
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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 statements on Form 10-KSB for the fiscal year ended April
30, 1999.
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 January 31, 2000 and the results of operations for the three and nine months
ended January 31, 2000 and 1999, and cash flows for the nine months ended
January 31, 2000 and 1999.
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at January 31, 2000:
Building improvements $ 344,000
Machinery and equipment 794,000
Furniture and fixtures 578,000
-----------
$1,716,000
Less accumulated depreciation and amortization 1,101,000
-----------
$ 615,000
===========
NOTE 3: NOTES PAYABLE
The Company's long-term debt consists of the following at January 31, 2000:
Notes payable to banks and other:
Note payable to Norwood Venture $ 788,000
Note payable to May Family (first transaction) 62,000
Note payable to May Family (second transaction) 247,000
Other note payable 27,000
-----------
$1,124,000
Less current portion 367,000
-----------
$ 757,000
===========
NOTE 4: INCOME PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
requires dual presentation of basic and diluted earnings per share for all
periods presented. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
9
<PAGE>
A reconciliation of the income and weighted-average shares used in both
calculations follows:
Periods ended January 31, 2000
------------------------------
Three Months Nine Months
-------------------------- ----------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $261,000 10,743,400 $.02 $673,000 10,743,400 $.06
Effect of
Stock options - 612,123 -0- - 573,242 -0-
-------- ----------- ---- --------- ---------- ----
Diluted EPS $261,000 11,355,523 $.02 $673,000 11,316,642 $.06
-------- ---------- ---- -------- ---------- ----
Periods ended January 31, 2000
------------------------------
Three Months Nine Months
-------------------------- ----------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $219,000 10,743,400 $.02 $642,000 11,229,356 $.06
Effect of
Stock options - 459,442 -0- - 459,442 (.01)
-------- --------- --- -------- ---------- -----
Diluted EPS $219,000 11,202,842 $.02 $642,000 11,688,798 $.05
-------- ---------- ---- -------- ---------- -----
Unexercised employee stock options to purchase 160,660 shares of the Company's
common stock for the three and nine months ended January 31, 2000 were not
included in the computation of diluted EPS because the options' exercise prices
were greater than the average market price of the Company's common stock during
the respective periods.
NOTE 5: STOCKHOLDERS' EQUITY TRANSACTIONS
In 1995 the Company purchased 1,072,988 shares of the Company's common stock
held by certain members of the May family at $.45 per share (first transaction).
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 Company's obligation under the note is
collateralized by a pledge by the Company to the noteholder of certain shares of
the repurchased common stock.
On September 2, 1998 the Company purchased 536,494 shares of the Company's $.01
par value common stock and an equal number of shares of class A common stock
held by certain members of the May family at $.575 per share (second
transaction). Terms of the agreement provide for a cash payment in the amount of
$308,485 and a five (5) year note in the amount of $308,485, bearing interest at
11.5% per annum. The principal is to be paid in five equal installments of
$61,697. The Company's obligation under the note is collateralized by a pledge
by the Company to the noteholders of certain repurchased shares.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
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LIQUIDITY
Net cash provided by operations for the nine months ended January 31, 2000 was
$750,000. The increase in cash and accounts receivable were partially offset by
the increase in accounts payable and accrued expenses.
In April, 1999, the Company refinanced its line of credit under an agreement
with a major New York bank. Under the new line of credit, the Company may borrow
up to $5,000,000. Borrowings under the line of credit are secured by
substantially all of the Company's assets, excluding real estate. Borrowings
under the line of credit at January 31, 2000 were $800,000.
The line of credit contains certain covenants.
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 quarter ended January 31, 2000 were
$5,346,000 and $261,000 respectively as compared to $4,559,000 and $219,000 for
the quarter ended January 31, 1999. Consolidated sales and net income for the
nine months ended January 31, 2000 were $14,160,000 and $673,000 respectively as
compared to $13,226,000 and $642,000 for the nine months ended January 31, 1999.
Sales increased by 7% during the nine months ended January 31, 2000 versus the
same period last year. These higher sales reflect the increase in service
revenue versus the same period in 1999.
Gross profit percentage for the nine months ended January 31, 2000 was 38.8% as
compared to 36.1% for the nine months ended January 31, 1999. Gross profit
percentage for the three months ended January 31, 2000 was 39.4% as compared to
37.8% for the three months ended January 31, 1999. The increase in gross profit
percentage was primarily due to an increase in service revenue, and a decrease
in new construction jobs and subcontracting, which have a lower gross profit
percentage than maintenance and service.
Operating income for the nine months ended January 31, 2000 was $1,399,000 as
compared to $1,145,000 for the nine months ended January 31, 1999. As a
percentage of revenue, the operating income for the nine months ended January
31, 1999 was 9.9% versus 8.7% in the same period in 1999. The increase in
operating income and its percentage to revenue was primarily due to an increase
in service revenue.
The Company's backlog for its life safety and other systems totaled $1,962,000
at January 31, 2000 as compared to $2,420,000 at April 30, 1999. Due to
fluctuations in the Company's backlog, management remains cautious about
predicting revenue in the fiscal year.
11
<PAGE>
Significant changes in balance sheet items from April 30, 1999 to January 31,
2000 are highlighted as follows:
1: Cash increased primarily due to income from operations.
2: Accounts receivable increased due to increased sales.
3: Prepaid expenses and other current assets increased due to an increase
in prepaid income taxes.
4: Long term debt decreased due to payments made on current maturities
of the long-term debt.
5. Accrued compensation increased due to an increase in stock appreciation
rights expense.
CAUTIONARY STATEMENTS
Information or statements provided by the Company from time to time contain
certain "forward-looking information" relating to such matters as liquidity,
projected sales and anticipated margins. The cautionary statements made herein
are being made pursuant to the Private Securities Litigation Reform Act of 1995
(the "Act") and with the intention of obtaining the benefits of the "safe
harbor" provisions of the Act for any such forward-looking information. The
Company cautions readers that any forward-looking information provided by the
Company is not a guarantee of future performance and that actual results may
differ materially from those in the forward-looking information as a result of
various factors, including but not limited to the acceptance in what is a new
market for the Company, the national market (historically, the vast majority of
the Company's revenues have been derived from the New York City market) of the
Company's newly-introduced line of safety products for the national market. The
principal manufacturers against whom the Company expects to compete in the
national market are generally better financed, have products accepted in the
market and have long-established distribution and servicing networks. The
Company's future growth is to a large extent dependent on being able to compete
successfully against these competitors.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Intellisec, a California corporation v. Firecom, Inc., a purported corporation;
- -------------------------------------------------------------------------------
Rosendin Electric. Inc., a purported corporation; Does 1 through 25, Inclusive,
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Case No. BC 216249
The Complaint was filed on September 3, 1999, in the Los Angeles Superior Court,
Central District.
The principal parties are Intellisec, Rosendin and Firecom. L.A. Arena Company,
Ltd., a limited partnership has been added as a defendant.
Rosendin is a contractor for a construction project in Los Angeles, California.
On or about August 28, 1998, Intellisec entered into a written Subcontract
Agreement to furnish and install complete and operational fire life safety,
smoke control and mechanical test panel systems for the project. Intellisec
alleges that, with respect to Rosendin, there were substantial delays caused by
failure of other contractors and/or subcontractors as well as change orders such
that Intellisec is owed in excess of $1,000,000 by Rosendin. Intellisec also
claims that Rosendin and Firecom agreed and conspired between themselves to take
over the work from Intellisec and to prevent Intellisec from obtaining a
contract for maintenance services for the systems and equipment upon completion
of the project.
12
<PAGE>
Firecom denies there was any such conspiracy or arrangement and contends that
Intellisec failed to pay for product delivered to it, failed to have the
necessary manpower or trained technicians for the project and that the removal
of Intellisec from the job by Rosendin was done solely by Rosendin and was the
result of Intellisec's own actions or inaction.
The Complaint seeks compensatory damages against Firecom based on information
and belief in an amount in excess of $1,000,000, interest thereon and costs of
suit. In addition, the Complaint seeks punitive or exemplary damages from
Firecom (in California a plaintiff may not allege a specific amount for punitive
damages). On October 29, 1999, Firecom filed an Answer denying liability and a
Cross-Complaint against Intellisec. The Cross-Complaint seeks compensatory
damages for breach of contract and money had and received in an amount in excess
of $200,000 together with interest and costs of suit.
On February 8, 2000, the Court granted Firecom's motion to dismiss or stay
Intellisec's complaint on December 23, 1999. Pursuant to the Court's Order, the
action was stayed pending resolution of the claims in a New York forum pursuant
to the parties' contractual forum selection clause.
Item 2. Exhibits and Reports on Form 8-K - None
SIGNATURES
----------
Firecom, Inc.
-------------
Dated: March 8, 2000 /s/ Paul Mendez
--------------- ------------------------
Paul Mendez
Chairman of the Board
President and Chief Executive
Officer
/s/ Jeffrey Cohen
-------------------------
Jeffrey Cohen
Vice President-Finance,
Chief Financial Officer, and
Principal Accounting Officer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
EXHIBIT 27 FINANCIAL DATA SCHEDULE
14
<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, 2000, 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-30-2000
<PERIOD-END> JAN-31-2000
<CASH> 4,299
<SECURITIES> 0
<RECEIVABLES> 4,765
<ALLOWANCES> 660
<INVENTORY> 1,891
<CURRENT-ASSETS> 11,286
<PP&E> 1,716
<DEPRECIATION> 1,101
<TOTAL-ASSETS> 11,955
<CURRENT-LIABILITIES> 4,060
<BONDS> 0
0
0
<COMMON> 133
<OTHER-SE> 6,590
<TOTAL-LIABILITY-AND-EQUITY> 11,955
<SALES> 14,160
<TOTAL-REVENUES> 14,160
<CGS> 8,667
<TOTAL-COSTS> 8,667
<OTHER-EXPENSES> 3,853
<LOSS-PROVISION> 226
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> 1,272
<INCOME-TAX> 599
<INCOME-CONTINUING> 673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 673
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
