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, 2000
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 August 31, 2000, the Registrant had 5,782,985 shares of Common Stock
outstanding, and 4,960,413 shares of Class A Common Stock outstanding.
1
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INDEX
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PAGE NO.
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Safe Harbor Statement 3
PART I FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet-July 31, 2000 4-5
Consolidated Statements of Income-
Three Months Ended July 31, 2000 and 1999 6
Consolidated Statements of Cash Flows-
Three Months Ended July 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 11-13
PART II OTHER INFORMATION 13
2
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SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-QSB for the three months ended July 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
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FIRECOM, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
(unaudited)
JULY 31, 2000
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,790,000
Accounts receivable, net of allowance for doubtful
accounts 3,952,000
Inventories 2,010,000
Deferred tax asset 681,000
Prepaid expenses and other current assets 168,000
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Total current assets $11,601,000
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FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT $ 1,810,000
Less: Accumulated Depreciation & Amortization 1,187,000
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Total Fixed Assets $ 623,000
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OTHER ASSETS
Deferred tax asset $ 361,000
Intangible assets, less accumulated amortization $ 33,000
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TOTAL ASSETS $12,618,000
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FIRECOM, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
(unaudited)
JULY 31, 2000
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 298,000
Accounts payable 903,000
Line of credit borrowing 800,000
Accrued expenses 1,774,000
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Total current liabilities $ 3,775,000
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LONG-TERM LIABILITIES:
Notes payable, less current portion 641,000
Accrued compensation 719,000
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Total Long-Term liabilities $ 1,360,000
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<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
<S> <C>
Preferred Stock, par value $1; authorized 1,000,000 shares, none issued $ - 0 -
Common Stock, par value $.01: Authorized 30,000,000 shares.
Issued: 7,350,474 Outstanding: 5,782,985 73,000
Class A Common Stock, par value $.01: Authorized 10,000,000 shares.
Issued: 5,991,407 Outstanding: 4,960,413 60,000
Additional Paid-In Capital 2,996,000
Retained Earnings 5,580,000
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Sub-Total $ 8,709,000
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
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Total Shareholders' Equity $ 7,483,000
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TOTAL LIABILITIES & EQUITY $12,618,000
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</TABLE>
5
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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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2000 1999
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NET SALES:
Product $ 3,222,000 $2,268,000
Service 1,798,000 1,653,000
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Total Sales 5,020,000 3,921,000
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COST OF SALES:
Product 2,100,000 1,695,000
Service 1,001,000 776,000
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Total Cost of Sales 3,101,000 2,471,000
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GROSS PROFIT 1,919,000 1,450,000
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OPERATING EXPENSES:
Selling, general and administrative 1,675,000 958,000
Research and development 189,000 206,000
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Total operating expenses 1,864,000 1,164,000
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INCOME FROM OPERATIONS 55,000 286,000
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OTHER INCOME (EXPENSE)
Interest income 68,000 42,000
Interest expense (44,000) (50,000)
Other -0- (4,000)
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Total Other Income (Expense) 24,000 (12,000)
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INCOME BEFORE INCOME TAX 79,000 274,000
INCOME TAX EXPENSE 38,000 129,000
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NET INCOME $ 41,000 $ 145,000
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NET INCOME PER COMMON SHARE:
Basic $ .00 $ .01
Diluted $ .00 $ .01
WEIGHTED AVERAGE NUMBER OF
SHARES USED IN COMPUTING EPS:
Basic 10,743,000 10,743,000
Diluted 11,393,000 11,170,000
6
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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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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,000 $ 145,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 66,000 53,000
Provision for doubtful accounts 74,000 75,000
Deferred income tax credit (78,000)
Employee stock option expense 100,000
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (1,000) 22,000
Inventories 32,000 84,000
Prepaid expenses and other 39,000 83,000
Accounts payable 44,000 18,000
Accrued expenses 39,000 (1,000)
Accrued compensation 230,000 (4,000)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 586,000 475,000
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NET CASH USED IN INVESTING ACTIVITIES,
Capital expenditures (50,000) (17,000)
NET CASH USED IN FINANCING ACTIVITIES,
Repayment of debt (124,000) (118,000)
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NET INCREASE IN CASH
AND CASH EQUIVALENTS 412,000 340,000
CASH AND CASH EQUIVALENTS:
Beginning of period 4,378,000 4,061,000
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End of period $ 4,790,000 $4,401,000
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7
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FIRECOM, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
THREE MONTHS ENDED
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JULY 31
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2000 1999
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SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest during the period $ 43,000 $ 48,000
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Cash paid for income taxes during the period $ 12,000 $ 68,000
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FIRECOM, INC. AND SUBSIDIARIES
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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, 2000.
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, 2000 and the results of operations for the three months ended July
31, 2000 and 1999, and cash flows for the three months ended July 31, 2000 and
1999.
Certain reclassifications were made in the 1999 financial statements to conform
to the classifications used in the 2000 financial statements.
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at July 31, 2000:
Building improvements $ 397,000
Machinery and equipment 832,000
Furniture and fixtures 581,000
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$1,810,000
Less accumulated depreciation and amortization 1,187,000
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$ 623,000
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NOTE 3: NOTES PAYABLE
The Company's long-term debt consists of the following at July 31, 2000:
Notes payable to banks and other:
Note payable to Norwood Venture $ 683,000
Note payable to May Family (second transaction) 247,000
Other note payable 9,000
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$ 939,000
Less current portion 298,000
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$ 641,000
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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.
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A reconciliation of the income and weighted-average shares used in both
calculations follows:
Periods ended July 31, 2000
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Three Months
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Income Shares EPS
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Basic EPS $ 41,000 10,743,000 $.00
Effect of
Stock options - 650,000 -0-
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Diluted EPS $ 41,000 11,393,000 $.00
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Periods ended July 31, 1999
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Three Months
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Income Shares EPS
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Basic EPS $145,000 10,743,000 $.01
Effect of
Stock options - 427,000 -0-
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Diluted EPS $145,000 11,170,000 $.01
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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 was paid in five equal annual
installments of $61,679. The Company's obligation under the note was
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.
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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 three months ended July 31, 2000 was
$586,000. The increase in cash, accounts payable and accrued expenses were
partially offset by the decrease in accounts receivable and inventory.
In April, 1999, the Company refinanced its line of credit under an agreement
with a major New York bank. Under the 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 July 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 July 31, 2000 were
$5,020,000 and $41,000 respectively as compared to $3,921,000 and $145,000 for
the quarter ended July 31, 1999. Sales increased by 28% during the three months
ended July 31, 2000 versus the same period last year. These higher sales reflect
the increase in product revenue versus the same period in 1999.
Gross profit percentage for the three months ended July 31, 2000 was 38.2% as
compared to 37.0% for the three months ended July 31, 1999. The increase in
gross profit percentage was primarily due to an increase in revenue, spread over
fixed overhead costs.
Operating income for the three months ended July 31, 2000 was $55,000 as
compared to $286,000 for the three months ended July 31, 1999. As a percentage
of revenue, the operating income for the three months ended July 31, 1999 was
1.1% versus 7.3% in the same period in 1999. The decrease in operating income
and its percentage to revenue was primarily due to a non cash compensation
charge of $308,000, which reflects an employment agreement with an executive of
the Company, which provides for the executive, upon the expiration of his
employment agreement, with the option to sell his stock and stock options back
to the Company ($208,000), and a charge for an extension of stock options to
recognize the difference between the fair market value of the underlying stock
at the date of the extension and the stock options' exercise prices ($100,000).
The Company's backlog for its life safety and other systems totaled $2,605,000
at July 31, 2000 as compared to $2,548,000 at April 30, 2000. Due to
fluctuations in the Company's backlog, management remains cautious about
predicting revenue in the fiscal year.
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Significant changes in balance sheet items from April 30, 2000 to July 31, 2000
are highlighted as follows:
1: Cash increased primarily due to income from operations.
2: Accounts receivable decreased due to better collections.
3: Prepaid expenses and other current assets decreased due to a decrease 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 a charge that reflects an
employment agreement with an executive of the Company, which provides for
the executive, upon the expiration of his employment agreement, with the
option to sell his stock and stock options back to the Company, and 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;
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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
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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.
Based on the three orders staying each of the California actions as to Firecom,
on June 16, 2000, Intellisec filed an action in the United States District
Court, Eastern District of New York, entitled Intellisec, Aria Kozak and Donna
Kozak, Plaintiffs v. Firecom, Inc., Defendant, Case No, 00-3557.
The Complaint contains claims for relief for Declaratory Relief, Breach of
Contract/ Specific Performance, Breach of Contract/ Damages, Breach of the
Implied Covenant of Good Faith and Fair Dealing, Intentional Interference with
Contract and Intentional Interference with Prospective Economic Advantage,
Violation of California Civil Code sections 1790 et seq. Negligent
Misrepresentation, Implied Indemnity, Equitable Indemnity, Contribution and
Injunctive Relief. The claims set forth in the Complaint relate to the three
actions filed by Intellisec in California and, in addition to equitable relief,
seek compensatory, punitive and exemplary damages in an undetermined amount.
Item 2. Exhibits and Reports on Form 8-K - None
SIGNATURES
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Firecom, Inc.
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Dated: September 12, 2000 /s/ Paul Mendez
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Paul Mendez
Chairman of the Board
President and Chief Executive
Officer
/s/ Jeffrey Cohen
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Jeffrey Cohen
Vice President-Finance,
Chief Financial Officer, and
Principal Accounting Officer
13
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EXHIBIT INDEX
EXHIBIT 27 FINANCIAL DATA SCHEDULE
