SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM-10QSB-QUARTERLY OR TRANSITIONAL REPORT
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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
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Indicate by check mark whether the Issuer (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 6, 1995, the Issuer had 4,731,543 shares of
Common Stock outstanding.
INDEX
Page
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PART I Financial Information
Item 1: Financial Statements
Consolidated Balance Sheet-July 31, 1995 3-4
Consolidated Statements of Income-
Three Months Ended July 31, 1995 and 1994 5-6
Consolidated Statements of Cash Flows-
Three Months Ended July 31, 1995 and 1994 7-8
Notes to Consolidated Financial Statements 9-11
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-13
PART II Other Information 14
2
FIRECOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
July 31, 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,208,000
Accounts receivable, net of
allowance for doubtful
accounts of $286,000 3,709,000
Inventories 1,059,000
Deferred tax asset 400,000
Prepaid expenses and other 149,000
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Total current assets $6,525,000
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $642,000 486,000
OTHER ASSETS:
Product enhancement costs,
less accumulated amortization
of $343,000 165,000
Prepaid loan fees 39,000
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204,000
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$7,215,000
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3
FIRECOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
(unaudited)
July 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, related parties $ 107,000
Current portion of notes payable, other 114,000
Accounts payable 639,000
Accrued expenses and other 925,000
Income taxes payable 46,000
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Total current liabilities $1,831,000
LONG-TERM LIABILITIES:
Notes payable, other 962,000
Accrued compensation 103,000
Deferred tax liabilities 55,000
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Total long-term liabilities 1,120,000
MANDITORILY REDEEMABLE COMMON STOCK 590,000
SHAREHOLDERS' EQUITY:
Preferred stock, par value $1,
authorized 1,000,000 shares,
none issued
Series A preferred stock,
stated value $1,197.50,
authorized, issued and
outstanding 1,200 shares 1,437,000
Common stock, par value $.01,
authorized 10,000,000 shares,
issued 5,114,371, outstanding
4,564,877 51,000
Capital in excess of par value 1,680,000
Retained earnings 990,000
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4,158,000
Less treasury stock, at cost,
549,494 shares 484,000
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Total shareholders' equity 3,674,000
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$7,215,000
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4
FIRECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
July 31
1995 1994
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NET SALES:
Product $2,108,000 $2,018,000
Service 1,456,000 1,423,000
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3,564,000 3,441,000
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COST OF SALES:
Product 1,233,000 1,245,000
Service 762,000 652,000
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1,995,000 1,897,000
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GROSS PROFIT 1,569,000 1,544,000
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OPERATING EXPENSES:
Selling, general and
administrative 901,000 744,000
Research and development 126,000 85,000
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Total operating expenses 1,027,000 829,000
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INCOME FROM OPERATIONS 542,000 715,000
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OTHER EXPENSES:
Interest 22,000 71,000
Other 3,000 1,000
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25,000 72,000
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INCOME BEFORE INCOME TAX EXPENSE 517,000 643,000
INCOME TAX EXPENSE 243,000 234,000
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NET INCOME 274,000 409,000
PREFERRED STOCK DIVIDENDS 32,000 32,000
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NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS $ 242,000 $ 377,000
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5
FIRECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME(continued)
(unaudited)
Three Months Ended
July 31
1995 1994
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NET INCOME PER COMMON SHARE: $ .04 $ .07
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WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTING EARNINGS PER SHARE 5,811,000 5,798,000
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6
FIRECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
July 31
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 274,000 $ 409,000
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Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 19,000 18,000
Provision for doubtful accounts 82,000 54,000
Deferred income tax credits -- 176,000
Changes in operating assets
and liabilities:
Increase in accounts receivable (297,000) (600,000)
Decrease(increase) in inventories (159,000) 76,000
Increase in other current and
noncurrent assets (76,000) (23,000)
Increase(decrease) in accounts
payable, accrued expenses
and other 197,000 (36,000)
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Total adjustments (234,000) (336,000)
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NET CASH PROVIDED BY OPERATING
ACTIVITIES: 40,000 74,000
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NET CASH USED IN INVESTING ACTIVITIES,
Capital expenditures (45,000) (12,000)
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NET CASH USED IN FINANCING ACTIVITIES:
Repayment of debt (345,000) (58,000)
Purchase of treasury shares (175,000) --
Proceeds from stock issue 29,000 --
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NET CASH USED IN FINANCING ACTIVITIES (491,000) (58,000)
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NET INCREASE(DECREASE) IN CASH (496,000) 4,000
CASH AND CASH EQUIVALENTS:
Beginning of year 1,704,000 690,000
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End of first quarter $1,208,000 $ 694,000
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7
FIRECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)
(unaudited)
Three Months Ended
July 31
1995 1994
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NON-CASH FINANCING ACTIVITY,
Debt incurred pursuant to the
acquisition of treasury shares $ 308,000 $ --
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8
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 consolidated financial statements in Form
10-KSB for the fiscal year ended April 30, 1995.
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.'s financial position at July 31, 1995 and the results
of operations for the three months ended July 31, 1995 and 1994 and
the statement of cash flows for the three months ended July 31,
1995 and 1994.
NOTE 2: INVENTORIES
Inventories consist of the following at July 31, 1995:
Raw materials and sub-assemblies $ 963,000
Work-in-process 96,000
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$1,059,000
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NOTE 3: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at July 31,
1995:
Building improvements $ 343,000
Machinery and equipment 559,000
Furniture and fixtures 226,000
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$1,128,000
Less accumulated depreciation
and amortization 642,000
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$ 486,000
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NOTE 4: NOTES PAYABLE
The Company's long-term debt consists of the following at
July 31, 1995:
Notes payable to related parties:
Second mortgage note and term note $ 107,000
Notes payable to banks and other:
Revolving bank note payable 300,000
First mortgage note payable 468,000
Other note payable 308,000
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$1,183,000
Less current portion 221,000
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$ 962,000
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9
NOTE 5: INCOME TAXES
The components of the Company's deferred tax assets and liabilities
at July 31, 1995 under SFAS 109 are as follows:
Federal State and City Total
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Deferred Assets:
Allowance for doubtful
accounts $ 72,000 $ 47,000 $119,000
Accrued incentive bonuses 67,000 44,000 111,000
Accrued litigation 24,000 16,000 40,000
Other(warranty, SARs,
inventory and other) 79,000 51,000 130,000
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242,000 158,000 400,000
Deferred tax liability, tax
depreciation in excess of
book depreciation (33,000) (22,000) (55,000)
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Net deferred tax asset $209,000 $136,000 $345,000
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NOTE 6: STOCKHOLDERS' EQUITY TRANSACTIONS
As a result of prepaying the convertible notes on July 8, 1994, the
rights to purchase 1,333,333 shares of common stock were converted
to an exercise price of $ .35 per share. The warrants are
exercisable immediately with 83,333 shares expiring quarterly
beginning June, 1995 through March, 1999. On June 7, 1995, 83,333
shares were exercised.
On June 21, 1995 the Company signed a Stock Purchase Agreement to
purchase 536,494 shares of the Company's $.01 par value common
stock held by certain members of the May family (the
"shareholders") at $.90 per share. Terms of the agreement provide
for a cash payment in the amount of $174,448 and a five (5) year
note in the amount of $308,397, bearing interest at 12% per annum.
Interest is payable monthly. The principal is to be paid in five
equal annual installments of $61,679. The purchase of these shares
was completed on July 18, 1995. The Company's obligation under the
note is secured by a pledge by the Company to the noteholder of
342,663 shares of the Company's common stock.
At the same time, the Company and the Shareholders entered into an
Option and Escrow Agreement relative to an additional 536,495
shares of the Company's common stock (the "Option Shares"). Under
the terms of this agreement, on September 1, 1998 the Shareholders
have the right, but not the obligation, to require the Company to
purchase, in whole or in part, their Option Shares (the "Put
Option") at a price of $1.10 per share. The Put Option is
conditional upon the Company meeting certain financial targets. At
any time under this agreement, the Company shall 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.
10
NOTE 7: COMMITMENTS AND CONTINGENCIES
The Company, its president, its wholly-owned subsidiaries and two
other employees (collectively the "defendants") have been named as
defendants in an action commenced by a competitor. Also named as
co-defendants are two related entities and a customer. This action
arises out of the competitor's contention that only those entities
approved or designated by them may repair or alter its fire alarm
and communication system. Commenced in the United States District
Court for the Southern District of New York on or about December
29, 1994, this action seeks to recover the sum of "at least
$10,000,000 to be trebled according to law", together with
attorney's fees, "punitive damages in an amount presently
undetermined", and a permanent injunction enjoining the defendants
from continuing to service the competitor's system. The plaintiff
has asserted a number of claims including those for violations of
the Sherman Antitrust Law, the Lanham Trademark Act, the Racketeer
Influenced and Corrupt Organizations Act and numerous state laws
dealing with false advertising and deceptive trade practices,
tortious interference with commercial relations and unfair
competition. Defendants have filed and Answer to plaintiff's
complaint and have served a Demand for the Production of Documents
and a notice of Examination Before Trial. The co-defendant
customer has asserted a cross-claim against Firecom, Inc. for
contribution or indemnification. While it is not possible at this
preliminary stage to determine possible liability, if any, the
Company has been advised by its insurance carrier that "it appears
the coverage of one or more of the carrier's policy (sic) is
triggered". The insurance carrier has preliminarily authorized a
retention of defense counsel to represent the above-named
defendants and has agreed to pay defense costs, subject to a
reservation of rights letter. At the present time, activity in
this case has stalled pending determination of plaintiff's motion
to disqualify defendants' counsel.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(unaudited)
LIQUIDITY
Net cash provided from operations for the three months ended
July 31, 1995 was $40,000 which was used for the repayment of
debt($345,000). toward capital expenditures($45,000) and for net
equity transactions($146,000), resulting in a net decrease in cash
of $496,000 as compared to April 30, 1995. The Company has a
revolving line of credit not to exceed $1,120,000 ($300,000
outstanding at July 31, 1995) and a first mortgage of $468,000 from
a major New York bank at July 31, 1995. These notes are
collateralized by all the Company's assets and are subject to
certain covenants. In addition, the notes restrict the payment of
common stock dividends at any time, and the payment of preferred
stock dividends until May 1, 1996. As of July 31, 1995, preferred
dividends in arrears were approximately $649,000.
The mortgage note is due July 8, 1999 and bears interest at
10.2% per annum, payable monthly. The note requires 59 monthly
principal payments of $4333.33 and a final payment of $264,333.53
on July 8, 1999. As of July 31, 1995, the outstanding balance was
$468,000.
The revolving note bears interest at prime plus 1%.
Availability under the terms of the revolver is based upon eligible
accounts receivable. The current maximum commitment for $1,120,000
under the terms of the revolving note is reduced by $140,000 each
January 31st and July 31st. The commitment expires July 8, 1999.
As of July 31, 1995, the outstanding balance on the revolving note
was $300,000 and the interest rate in effect was prime plus 1% or
9.75%.
As of July 31, 1995, the Company had a mortgage note in the
amount of $84,000 and an unsecured note in the amount of $23,000,
both bearing interest at 15%, due Firecom Holdings, L.P.. Both
notes are due April 30, 1996 and are subordinated to the bank debt.
Monthly payments of principal and interest will amount to
approximately $17,000 through maturity. All principal and interest
payments are current.
As of July 31, 1995, the Company had a five (5) year note in
the amount of approximately $308,000 due Helen May resulting from
the purchase of treasury shares as detailed in Note 6 of the Notes
to Consolidated Financial Statements. This note, dated July 18,
1995, bears interest at 12% per annum, paid monthly, and is
subordinated to the bank debt. Principal is payable in five (5)
equal annual payments. The Company's obligation under the note is
secured by a pledge by the Company to the noteholder of 342,663
shares of the Company's common stock.
Management believes that the Company will be able to maintain
adequate working capital and cash balances to meet its needs.
12
RESULTS OF OPERATIONS
Consolidated sales and net income for the three months ended
July 31, 1995 were $3,564,000 and $274,000 respectively as compared
to $3,441,000 and $409,000 for the three months ended July 31,
1994. Sales for the Fire Controls division, which sells life
safety and other electronic systems for high rise buildings , were
6% greater than the prior year. The Company's Fire Service, Inc.
subsidiary recorded a 4% increase while revenues for the FRCM Case-
Acme subsidiary were flat. Fire Controls generated 49.8% of total
revenues, Fire Service 28.7% and FRCM Case-Acme 21.5%.
The Company's backlog for its life safety and other systems
totaled $2,945,000 at July 31, 1995 as compared to $3,205,000 at
April 30, 1995. While the decrease reflects the depressed
condition of the New York market, management believes that it will
be able to maintain current revenue levels.
Operating income for the three months ended July 31, 1995 was
$542,000 or 15% of revenues as compared to $715,000 or 20% of
revenues. The decrease reflects increases in staff, payrolls, bad
debt provisions and increased expenditures for research and
development. Gross profits as a percentage of revenues were
approximately 44% as compared with approximately 45% for the same
period of the prior year, reflecting the highly competitive nature
of the New York market.
Significant changes in balance sheet items from April 30, 1995
to July 31, 1995 are highlighted as follows:
1: Accounts receivable increased due to a combination of
increased sales and slower collections.
2: Inventories increased as a result of stocking requirements
for current jobs.
3: The increase in Property, plant and equipment reflects the
acquisition of equipment.
4: The net reduction in debt resulted from scheduled payments
and the reductions in the revolving line-of-credit
outstanding together with the addition of debt related to
the purchase of treasury shares.
5: Changes in Common stock, Capital in excess of par value,
Treasury stock and Manditorily redeemable common stock
resulted from the exercise of warrants, the purchase of
treasury shares and the commitment under an Option and
Escrow Agreement as detailed in Note 6 of the Notes to
Consolidated Financial Statements.
The decrease in interest expense in the first quarter to
$22,000 from $71,000 in the same quarter of the prior year resulted
primarily from the decrease in long-term debt.
13
FIRECOM INC. AND SUBSIDIARIES
PART II
Item 1: Legal Proceedings - None
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Item 2: Exhibits and Reports on Form 8-K
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Exhibits
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Exhibit 27 Financial Data Schedule
Reports of Form 8-K
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None
SIGNATURES
Firecom, Inc.
Date: September 6, 1995 /s/ Paul Mendez
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Paul Mendez
Chairman of the Board,
President and Chief
Executive Officer
Date: September 6, 1995 /s/ Richard K. Nelson
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Richard K. Nelson
Vice President-Finance and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
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Exhibit 27 Financial Data Schedule