UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________________ to _________________
Commission file number 0-18684
Command Security Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 14-1626307
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Lexington Park, LaGrangeville, New York 12540
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 454-3703
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practical date: 6,718,021 (as of August 8, 1997).
<PAGE>
COMMAND SECURITY CORPORATION
INDEX
PART I. Financial Information Page No.
--------
Item 1. Financial Statements
Condensed Statements of Operations -
three months ended June 30, 1997
and 1996 (unaudited) 2
Condensed Balance Sheets -
June 30, 1997 and March 31, 1997
(unaudited) 3
Condensed Statements of Stockholders' Equity -
three months ended June 30, 1997 and 1996
(unaudited) 4
Condensed Statements of Cash Flows three months
ended June 30, 1997 and 1996 (unaudited) 5 - 6
Notes to Condensed Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10 - 11
PART II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
1
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
COMMAND SECURITY CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
---------------------------
June 30, June 30,
1997 1996
------------ ------------
Revenue $ 11,788,480 $ 12,000,789
Cost of revenue 10,158,242 10,040,157
------------ ------------
Gross profit 1,630,238 1,960,632
Service contract revenue (note 1) 427,793 327,772
------------ ------------
2,058,031 2,288,404
------------ ------------
Operating expenses
General and administrative expenses 1,817,165 1,635,323
Amortization of intangibles 413,009 445,791
Provision for doubtful accounts 159,119 63,086
------------ ------------
2,389,293 2,144,200
------------ ------------
Operating profit/(loss) (331,262) 144,204
Interest income 104,820 59,801
Management fees 35,000 -0-
Interest expense (273,420) (281,920)
Equipment dispositions (11,372) (11,968)
------------ ------------
Loss before income taxes (476,234) (89,883)
Provision for income taxes -0- -0-
------------ ------------
Net loss (476,234) (89,883)
Preferred stock dividends (34,871) (32,291)
------------ ------------
Net loss applicable to
common stockholders $ (511,105 ) $ (122,174)
============ ============
Net loss per common share $ (.07) $ (.02)
============ ============
Weighted average number
of common and common
equivalent shares outstanding 6,859,578 6,764,206
============ ============
See accompanying notes to condensed financial statements.
2
<PAGE>
COMMAND SECURITY CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
June 30, March 31,
1997 1997
------------ ------------
ASSETS
Current assets:
Accounts receivable - net $ 11,809,947 $ 12,771,692
Notes receivable, current maturities - net 127,842 218,267
Prepaid expenses 695,926 1,322,918
Other receivables - net 564,161 699,248
------------ ------------
Total current assets 13,197,876 15,012,125
Property and equipment - net 1,155,597 1,105,473
Other assets:
Notes and accounts receivable
due after one year - net 302,913 387,327
Intangible assets - net 4,785,241 5,033,566
Deferred income taxes 259,835 259,835
Other assets 1,562,872 1,390,250
------------ ------------
Total other assets 6,910,861 7,070,978
------------ ------------
Total assets $ 21,264,334 $ 23,188,576
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 397,187 $ 753,644
Current maturities of long-term debt 818,583 977,372
Current maturities of obligations under
capital leases 85,566 77,047
Short-term borrowings 7,367,325 7,763,578
Accounts payable 541,763 654,339
Due to service companies 517,833 685,150
Accrued payroll and other expenses 2,402,018 2,687,783
------------ ------------
Total current liabilities 12,130,275 13,598,913
Deferred revenue 356,685 391,685
Self-insurance reserves 638,469 438,820
Long-term debt due after one year 1,036,429 1,195,234
Obligations under capital leases due after
one year 103,975 89,189
------------ ------------
14,265,833 15,713,841
------------ ------------
Redeemable, convertible Series A preferred stock 1,778,426 1,743,555
------------ ------------
Stockholders' equity:
Common stock, $.0001 par value 807 842
Additional paid-in capital 9,862,483 9,897,319
Retained earnings/(deficit) (4,640,215) (4,163,981)
Treasury stock at cost (3,000) (3,000)
------------ ------------
Total stockholders' equity 5,220,075 5,731,180
------------ ------------
Total liabilities and stockholders' equity $ 21,264,334 $ 23,188,576
============ ============
See accompanying notes to condensed financial statements.
3
<PAGE>
COMMAND SECURITY CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Retained
Common Paid-In Earnings Treasury
Stock Capital (Deficit) Stock
----- ------- --------- -----
<S> <C> <C> <C> <C>
Balance at March 31, 1996 $ 812 $ 9,805,425 $(4,614,011) $ (3,000)
Exercise of common stock put (218,765)
Preferred stock dividends (32,291)
Net loss - three months ended
June 30, 1996 (89,883)
--------- ----------- ----------- --------
Balance at June 30, 1996 812 9,554,369 (4,703,894) (3,000)
Common stock issued 21 439,198
Issuance/(return) of
escrowed common stock
Note collateral 24 (24)
Accrued fees (15) 15
Common stock warrants subscribed 500
Preferred stock dividends (96,739)
Net income - nine months ended
March 31, 1997 539,913
--------- ----------- ----------- --------
Balance at March 31, 1997 842 9,897,319 (4,163,981) (3,000)
Return of escrowed
common stock
Note collateral (35) 35
Preferred stock dividends (34,871)
Net loss - three months ended
June 30, 1997 (476,234)
--------- ----------- ----------- --------
Balance at June 30, 1997 $ 807 $ 9,862,483 $(4,640,215) $ (3,000)
========= =========== =========== ========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
COMMAND SECURITY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
--------------------------
June 30, June 30,
1997 1996
----------- -----------
Cash flow from operating activities:
Net loss $ (476,234) $ (89,883)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 503,366 531,933
Provision for doubtful accounts 159,119 63,086
Loss on equipment dispositions 11,372 11,968
Self-insurance reserves 313,737 18,116
Decrease in receivables,
prepaid expenses and deposits 1,451,647 722,547
Decrease in accounts payable
and other current liabilities (679,746) (585,404)
----------- -----------
Net cash provided by operating activities 1,283,261 672,363
----------- -----------
Cash flows from investing activities:
Purchases of equipment (47,120) (29,716)
Proceeds from sale of equipment 1,330 25,606
Purchase of intangible assets (76,717) -0-
Notes issued -0- (60,000)
Principal collections on notes receivable 80,275 82,186
----------- -----------
Net cash provided by/(used in) investing
activities (42,232) 18,076
----------- -----------
Cash flows from financing activities:
Net repayments on line-of-credit (286,608) (774,025)
Increase/(decrease) in cash overdrafts (356,457) 580,103
Principal payments on other borrowings (583,000) (484,292)
Principal payments on capital lease obligations (14,964) (12,225)
----------- -----------
Net cash used in financing activities (1,241,029) (690,439)
----------- -----------
Net decrease in cash
and cash equivalents -0- -0-
Cash and cash equivalents
at beginning of period -0- -0-
----------- -----------
Cash and cash equivalents
at end of period $ -0- $ -0-
=========== ===========
See accompanying notes to condensed financial statements.
5
<PAGE>
(Continued)
COMMAND SECURITY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental Disclosures of Cash Flow Information
Cash paid during the three months ended June 30 for:
1997 1996
--------- ---------
Interest $ 288,823 $ 276,594
Income taxes -0- -0-
Supplemental Schedule of Non-Cash Investing and Financing Activities
For the three months ended June 30, 1997 and 1996, the Company purchased
transportation and office equipment with direct installment and lease financing
of $106,063 and $126,745, respectively.
For the three months ended June 30, 1997 and 1996, the Company accrued dividends
of $34,871 and $32,291, respectively, on its Series A convertible preferred
stock. These charges to paid-in capital and credits to preferred stock have been
excluded in the statement of cash flows.
In June, 1997, the Company purchased certain guard service accounts for a total
consideration of $144,684. The Company paid $56,717, issued a note for $56,717
and entered into an agreement for consulting services for $31,250 to effect the
transition of the accounts. The non-cash portions have been excluded from the
purchase of accounts and issuance of notes in the statement of cash flows.
In June, 1996, the Company negotiated a settlement with NSC Shareholder Trust in
connection with a put offer given for common stock issued in consideration for
the purchase of customer accounts. The resultant charge to paid-in capital and
intangibles of $218,765 and $3,512, respectively, and credit to notes payable of
$222,277 have been excluded in the statement of cash flows.
See accompanying notes to condensed financial statements.
6
<PAGE>
COMMAND SECURITY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's financial statements for
the year ended March 31, 1997.
The financial statements for the interim periods shown in this report are not
necessarily indicative of results to be expected for the fiscal year. In the
opinion of management, the information contained herein reflects all adjustments
necessary to summarize fairly the results of operations, financial position,
stockholders' equity and cash flows at June 30, 1997, and for the period then
ended. All such adjustments are of a normal recurring nature.
1.) Service Companies:
The following is a summary of the service companies' activities for the
three months ended June 30, 1997 and 1996, respectively, the components of
which have been excluded from the Company's financial statements:
Three Months Ended
---------------------------
June 30, June 30,
1997 1996
---------- ----------
Service companies' guard
service revenue $4,869,219 $3,754,033
Cost of revenue 3,736,950 3,123,975
---------- ----------
Gross profit 1,132,269 630,058
Service companies' share
of gross profit 841,018 406,062
---------- ----------
291,251 223,996
Other service revenue 136,542 103,776
---------- ----------
Total service contract revenue $ 427,793 $ 327,772
========== ==========
7
<PAGE>
(Continued)
COMMAND SECURITY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
2.) Short-Term Notes Payable:
In February, 1995, the Company entered into an agreement with The CIT
Group/Finance, Inc. ("CIT") under a revolving loan and security agreement
(the "agreement"). The agreement, as amended on January 30, 1997, provides
for a discretionary line of credit of up to 85% of eligible accounts
receivable, as defined in the agreement, but in no event in excess of $10
million. At June 30, 1997, the Company had used $6,864,228 of this line,
representing virtually 100% of its maximum borrowing capacity. Interest is
payable monthly, at 1.5% above prime (10% at June 30, 1997). The line is
collateralized by customer accounts receivable and substantially all other
assets of the Company. The term of the agreement is initially until
February, 1999, with automatic two year renewal terms thereafter.
3.) Loss per Share:
Loss per common share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the period,
including the dilutive effect, if any, of warrants and stock options
outstanding. Warrants and stock options outstanding and preferred stock
conversions were excluded from the computation for each period presented
because their effect was antidilutive.
4.) Self-Insurance
The Company adopted a partially self-insured health insurance program that
covers all eligible administrative personnel, effective as of March 1,
1997. There is a maximum of $30,000 per year per employee and an aggregate
amount per year, based on the number of participants (currently 112
employees, or $385,700), that the Company can be responsible for. A
stop-loss insurance policy covers all claims in excess of the above
amounts.
The Company has an insurance policy to cover workers compensation claims
in most states that the Company performs services. Annual premiums are
based on incurred losses as determined at the end of the coverage period,
subject to a minimum and maximum premium. Insurance providers assist the
Company in determining its estimated liability for these claims.
The nature of the Company's business also subjects it to claims or
litigation alleging that it is liable for damages as a result of the
conduct of its employees or others. The Company insures against such
claims and suits through policies with third-party insurance companies.
Such policies have limits of $1,000,000 per occurrence and $2,000,000 in
the aggregate. In addition, the Company has obtained an excess liability
policy that covers claims for an additional $25,000,000 in the aggregate.
The Company retains the risk for the first $50,000 per occurrence.
Cumulative amounts estimated to be payable by the Company with respect to
pending and potential claims for all years in which the company is liable
under its self-insurance retention and retro workers compensation policies
have been accrued as liabilities. Such accrued liabilities are necessarily
based on estimates; thus, the company's ultimate liability may exceed or
be less than the amounts accrued. The methods of making such estimates and
establishing the resultant accrued liability are reviewed continually and
any adjustments resulting therefrom are reflected in current earnings.
8
<PAGE>
(Continued)
COMMAND SECURITY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
5.) Contingent Liabilities:
The Company has guaranteed certain installment loans extended to various
service companies by Capital Resources Company. The total outstanding
balance on such loans as of June 30, 1997, was approximately $1,081,000.
The Private Placement Memorandum issued in connection with the Company's
1993 Private Placement and the interim financial reports for the first
three quarters in the fiscal years ended March 31, 1994 and 1995, filed by
the Company contained financial information which has since been restated.
It is possible that the purchasers of Units pursuant to the 1993 offering
and the purchasers of shares in connection with the offerings that were
consummated in February, 1995, may make a claim for, among other things,
rescission of their investment, which totaled $4,000,000 in the 1993
offering and approximately $4,160,000 in the 1995 offerings, plus
interest, alleging, in each case, as the basis, the above-mentioned
restatements. Other causes of action against the Company based on federal
and/or state securities laws are also possible. Additional expenditures in
the form of damages and fees, if any, are not quantifiable. No such claims
have been received by the Company to date. If the Company were to become
involved in litigation arising from these circumstances, the Company's
results of operations and financial condition may be materially adversely
affected due to the drain on cash and management resources. Management is
of the opinion that the probability of claims and a resultant negative
impact on the Company's operations and financial condition is diminishing
with time.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
The following should be read in conjunction with the Company's financial
statements and the related notes thereto.
Revenue decreased by $212,309 for the quarter ended June 30, 1997 to
$11,788,480, from $12,000,789 for the quarter ended June 30, 1996. Revenue
increased for the quarter by $528,000 as a result of an acquisition in
September, 1996. This was offset by $483,000 due to the sale, in December, 1996,
of the Miami operation. The remaining decrease of $257,000 is due to contract
cancellations net of new contracts starts.
Gross profit decreased by $330,394 to $1,630,238 or 13.8% of revenue for the
quarter ended June 30, 1997, compared to $1,960,632 or 16.3% of revenue for the
quarter ended June 30, 1996. Of this decrease, $295,000 is the result of a
higher provision for self insurance reserves (SIR). The remaining decrease of
$35,000 was due to lower revenue. The SIR charge is based on actuarial
computations and the timing of reported claims and, therefore, at this time it
is not known if the increase will continue in future periods. The increase for
the current quarter is not necessarily indicative of a trend.
The Company provides payroll and billing services and accounts receivable
financing through contracts with service company clients for a percentage of the
revenue or gross profit generated from their business. The Company owns the
accounts receivable and, depending on the individual contract, may be the
employer of record. The caption "Service Contract Revenue" represents the income
earned on the Service Agreements.
Service contract revenue increased by $100,021 to $427,793 in the quarter ended
June 30, 1997 from $327,772 in the quarter ended June 30, 1996. This increase is
due to higher volume of sales generated by service agreement clients under both
the employer of record and non-employer of record programs.
General and administrative expenses increased by $181,842 to $1,817,165 for the
quarter ended June 30, 1997 from $1,635,323 for the quarter ended June 30, 1996.
The major areas of increase are rent and utilities ($12,300), telephone
($31,000), travel and promotion ($52,300) due to increased internal marketing
efforts, insurance expense ($52,700), professional fees ($45,300) and bank fees
($28,700). This was partially offset by lower salaries ($46,800).
Amortization of intangibles decreased by $32,782 to $413,009 for the quarter
ended June 30, 1997 compared to $445,791 for the prior year's quarter. This is
primarily due to the fact that the capitalized borrowing costs incurred in
February, 1995 are now fully amortized.
The provision for bad debts increased by $96,033 to $159,119 for the quarter
ended June 30, 1997 from $63,086 for the quarter ended June 30, 1996. This
increase is primarily due to higher reserve requirements for receivables from
certain service agreement clients.
Net interest expense decreased by $53,519 to $168,600 for the quarter ended June
30, 1997 from $222,119 for the comparable quarter of the prior year. Interest
income increased by $30,900 as a result of the collection of certain advances
from one of the Company's employer of record service agreement clients and
$14,100 as a result of increased finance charges earned as part of the Company's
non-employer of record service agreement program.
Interest expense decreased by $8,500 as a result of lower debt levels.
Management fee income is income recognized for financial consulting services
provided to a service agreement client. Such services are not expected to recur
in future periods.
Loss on equipment dispositions primarily represents older vehicles sold or
retired.
10
<PAGE>
(Continued)
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Liquidity and Capital Resources
The Company pays its guard employees and those of its Service Agreement Clients
on a weekly basis, while its customers and the customers of service company
clients pay for the services of such employees generally between 50 to 60 days
after billing by the Company. In order to provide funds for payment to its guard
employees, on February 24, 1995, the Company entered into a commercial revolving
loan arrangement with CIT Group/Credit Finance (CIT).
This agreement was amended as of January 30, 1997 to provide for a two year
renewal to February 23, 1999 as well as other changes in terms and conditions.
Under this agreement, borrowings may be made in an amount up to 85% (previously
82.5%) of eligible accounts receivable, but in no event more than $10,000,000.
The amendment also provided for a term loan in the amount of $500,000 to be
repaid in equal monthly installments over five years. The Company used those
funds for working capital purposes. Outstanding balances under the revolving
loan and the term loan bear interest at a per annum rate of 1 and 1/2%
(previously 2% on the revolving loan) in excess of the "prime rate" and are
collateralized by a pledge of the Company's accounts receivable and other
assets.
At June 30, 1997, the Company had borrowed $6,864,228 or approximately 72.2% of
its billed accounts receivable (after allowance for bad debts, but before
accrued and unbilled receivables) and virtually 100% of its maximum borrowing
capacity based on the definition of "eligible accounts receivable" under the
terms of the revolving loan arrangement.
Generally, the Company borrows a high percentage of its available borrowing,
which can fluctuate materially from day to day due to changes in the status of
the factors used to determine availability (such as billing, payments and aging
of accounts receivable).
The Company entered into a subordinated loan arrangement on February 24, 1995,
with Deltec Development Corporation (Deltec) pursuant to which the Company
borrowed $1,500,000, the proceeds of which were used primarily to acquire the
assets of United Security Group Inc. (United). The subordinated loan has a term
of four years, calls for quarterly principal and interest payments and bears
interest at fourteen percent (14%) per annum. It is collateralized, on a
subordinated basis, by all the Company's assets, properties and other revenue.
The balance due Deltec at June 30, 1997 was $656,250.
The Company finances vehicle purchases typically over three years and insurance
through short-term borrowings. The Company has no additional lines of credit
other than discussed herein.
The Company has no present material commitments for capital expenditures.
11
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
Reference is made to footnote 5 to the condensed financial statements
presented herein.
Item 6. Exhibits and Reports on Form 8-K
(1) Exhibits - None
(2) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1997.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMAND SECURITY CORPORATION
Date: August 8, 1997 By: /s/ William C. Vassell
------------------------------------------
William C. Vassell, Chairman of the Board
By: /s/ H. Richard Dickinson
------------------------------------------
H. Richard Dickinson,
Principal Financial Officer
13
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.00
<CASH> (397)
<SECURITIES> 0
<RECEIVABLES> 13,612
<ALLOWANCES> 1,110
<INVENTORY> 0
<CURRENT-ASSETS> 13,198
<PP&E> 2,960
<DEPRECIATION> 1,804
<TOTAL-ASSETS> 21,264
<CURRENT-LIABILITIES> 12,130
<BONDS> 9,412
1,778
0
<COMMON> 1
<OTHER-SE> 5,219
<TOTAL-LIABILITY-AND-EQUITY> 21,264
<SALES> 0
<TOTAL-REVENUES> 12,216
<CGS> 0
<TOTAL-COSTS> 10,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 159
<INTEREST-EXPENSE> 273
<INCOME-PRETAX> (476)
<INCOME-TAX> 0
<INCOME-CONTINUING> (476)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (476)
<EPS-PRIMARY> (.07)
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</TABLE>
