SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 October 31, 1996
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
___ ____
As of December 6, 1996, the Registrant had 4,881,342 shares of Common Stock
outstanding.
INDEX
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Page No.
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PART I FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet-October 31, 1996 3-4
Consolidated Statements of Income-
Three Months and Six Months Ended
October 31, 1996 and 1995 5
Consolidated Statement of Cash Flows-
Six Months Ended October 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-8
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-10
PART II OTHER INFORMATION 10
FIRECOM, INC. and SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
(unaudited)
OCTOBER 31, 1996
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,167,000
Accounts receivable, net of allowance for doubtful
accounts of $375,000. 4,287,000
Inventories 1,556,000
Deferred tax asset 438,000
Prepaid expenses and other 78,000
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Total current $ 8,526,000
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FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT, $ 1,152,000
Less: Accumulated Depreciation & Amortization 636,000
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Total Fixed Assets $ 516,000
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OTHER ASSETS
Product Enhancement $ 508,000
Less: Accumulated Amortization 408,000
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Total Product Enhancement $ 100,000
Prepaid Loan Fees $ 27,000
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Total Other Assets $ 127,000
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TOTAL ASSETS $ 9,169,000
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FIRECOM, INC. and SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
(unaudited)
OCTOBER 31, 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 113,000
Accounts payable 832,000
Accrued expenses 949,000
Income taxes payable 296,000
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Total current liabilities $2,190,000
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LONG-TERM LIABILITIES:
Notes payable $ 536,000
Accrued compensation 189,000
Deferred tax liabilities 63,000
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Total Long-Term liabilities $ 788,000
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MANDATORY REDEEMABLE COMMON STOCK 590,000
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SHAREHOLDERS' EQUITY
Preferred Stock, par value $1; authorized
1,000,000 shares, none issued $ -0-
Series A Preferred Stock, stated value $1,197.50:
Authorized and Outstanding: 1,200 shares. 1,437,000
Common Stock, par value $.01: Authorized 10,000,000 shares.
Issued: 5,329,005 Outstanding: 4,881,342. 53,000
Additional Paid-In Capital 1,649,000
Retained Earnings 2,872,000
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Sub-Total $6,011,000
Less: Treasury Stock, at cost, 447,663 shares 410,000
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Total Shareholders' Equity $5,601,000
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TOTAL LIABILITIES & EQUITY $9.169,000
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FIRECOM, INC. and SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
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OCTOBER 31 OCTOBER 31
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1996 1995 1996 1995
---- ---- ---- ----
NET SALES:
Product $ 2,451,000 $ 2,119,000 $4,358,000 $4,227,000
Service 1,693,000 1,675,000 3,291,000 3,131,000
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Total Sales 4,144,000 3,794,000 7,649,000 7,358,000
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COST OF SALES:
Product 1,289,000 1,272,000 2,369,000 2,505,000
Service 794,000 787,000 1,569,000 1,549,000
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Total Cost of Sales 2,083,000 2,059,000 3,938,000 4,054,000
--------- ----------- ---------- ---------
GROSS PROFIT 2,061,000 1,735,000 3,711,000 3,304,000
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OPERATING EXPENSES:
Selling, general
and administrative 1,075,000 855,000 1,996,000 1,756,000
Research and
development 219,000 126,000 368,000 252,000
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Total operating
expenses 1,294,000 981,000 2,364,000 2,008,000
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INCOME FROM
OPERATIONS 767,000 754,000 1,347,000 1,296,000
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OTHER EXPENSES
Interest 13,000 28,000 21,000 50,000
Other 65,000 2,000 87,000 5,000
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Total Other Expenses 78,000 30,000 108,000 55,000
INCOME BEFORE
INCOME TAX 689,000 724,000 1,239,000 1,241,000
INCOME TAX EXPENSE 386,000 359,000 645,000 602,000
NET INCOME $ 303,000 $ 365,000 $ 594,000 $ 639,000
========= =========== ========= =========
NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS $ 273,000 $ 332,000 $ 538,000 $ 574,000
NET INCOME PER
COMMON SHARE $ .05 $ .06 $ .09 $ .10
WEIGHTED AVERAGE
NUMBER OF
SHARES USED IN
COMPUTING EPS 5,745,000 5,534,000 5,719,000 5,534,000
FIRECOM, INC. and SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
SIX MONTHS ENDED
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OCTOBER 31
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 594,000 $ 639,000
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Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 47,000 39,000
Provision for doubtful accounts 123,000 142,000
Deferred income tax credits -0- -0-
Changes in operating assets and liabilities:
(Increase) in accounts
receivable, (693,000) (577,000)
(Increase) in inventories (404,000) (186,000)
(Increase) in other current
and noncurrent assets ( 37,000) ( 30,000)
Increase in accounts payable,
accrued expenses & other 490,000 286,000
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Total adjustments (474,000) (326,000)
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 120,000 313,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 88,000) ( 60,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt ( 88,000) ( 393,000)
Purchase of treasury shares -0- ( 175,000)
Proceeds from stock issue 58,000 58,000
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NET CASH USED IN
FINANCING ACTIVITIES ( 30,000) ( 510,000)
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NET INCREASE/(DECREASE) IN CASH 2,000 ( 257,000)
CASH:
Beginning of year 2,165,000 1,704,000
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End of three months $2,167,000 $1,447,000
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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, 1996.
In the opinion of management the accompanying consolidated financial
statement contains the necessary adjustments, all of which are of a normal
and recurring nature, to present fairly Firecom Inc.'s financial position
at October 31, 1996 and the results of operations for the three and six
months ended October 31, 1996 and 1995 and statement of cash flows for the
six months ended October 31, 1996 and 1995.
NOTE 2: INVENTORIES
Inventories consist of the following at October 31, 1996:
Raw materials and sub-assemblies $1,394,000
Work-in-process 162,000
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$1,556,000
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NOTE 3: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at October 31, 1996:
Building improvements $ 254,000
Machinery and equipment 565,000
Furniture and fixtures 333,000
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$1,152,000
Less accumulated depreciation
and amortization 636,000
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$ 516,000
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NOTE 4: NOTES PAYABLE
The Company's long-term debt consists of the following at October 31,
1996:
Notes payable to banks and other:
First mortgage note payable $ 403,000
Other note payable 246,000
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$ 649,000
Less current portion 113,000
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$ 536,000
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NOTE 5: INCOME TAXES
The components of the Company's deferred tax assets and liabilities at
October 31, 1996 under SFAS 109 are as follows:
Federal State and City Total
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Deferred Assets:
Tax benefit attributable to:
Allowance for doubtful accounts $ 91,000 $ 59,000 $150,000
Accrued incentive bonuses 95,000 62,000 157,000
Other (warrants, SARs, inventory
and other) 80,000 51,000 131,000
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266,000 172,000 438,000
Deferred tax liability, tax
depreciation in excess of
book depreciation (38,000) (25,000) (63,000)
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$226,000 $147,000 $375,000
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NOTE 6: STOCKHOLDERS' EQUITY TRANSACTIONS
As a result of prepaying convertible notes on July 8, 1994, the rights to
purchase 1,333,333 shares of common stock were converted to warrants at an
exercise price of $.35 per share. The warrants are exercisable immediately
with 83,333 shares expiring quarterly through March, 1999. As of October
31, 1996, warrants for 499,998 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 provided 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.
NOTE 7: COMMITMENTS AND CONTINGENCIES:
On December 31, 1992, the Company entered into an employment agreement
("agreement") with the Chairman of the Company, which was amended on March
28, 1995, providing for base salary plus incentive compensation and fringe
benefits as defined in the agreement, through December 31, 1997. At
October 31, 1996, the Company has accrued $198,000 of incentive
compensation and $100,000 of accrued fringe benefits.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
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LIQUIDITY
Net cash provided by the operations for the six months ended October 31,
1996 was $120,000 reflecting increases in accounts payable and accrued
expenses which were partially offset by increases in accounts receivable
and inventories. The Company's revolving financing agreement with a major
New York bank, dated July 8, 1994, was amended on April 1, 1996. This
amendment provided the Company with a revolving line of credit not to
exceed $2 million (there was no outstanding balance as of July 31, 1996)
and a first mortgage note of $429,000 at April 30, 1996 (the balance was
$403,000 as of October 31, 1996). These loan facilities are collateralized
by all of the Company's assets and are subject to certain covenants,
including a restriction on the payment of common stock dividends at any
time and the payment of preferred dividends until April 1, 1999. As of
October 31, 1996, preferred dividends in arrears were approximately
$811,000.
Availability of funds under the terms of revolving line of credit is based
on eligible accounts receivable and inventory. The initial commitment for
$2 million, under the terms of the note, is reduced by $500,000 each six
months commencing on October 1, 1999.
Management believes that it will be able to maintain adequate working
capital and cash balances to meet its current needs.
RESULTS OF OPERATIONS
Consolidated sales and net income for the quarter ended October 31, 1996
were $4,144,000 and $303,000 respectively as compared to $3,794,000 and
$365,000 for the three months ended October 31, 1995. Over the same
period, sales for the Fire Controls division, which sells life safety and
other electronic systems for high rise buildings, increased by 15%. Sales
for the Company's FRCM Case-Acme subsidiary increased by 14% during the
three months ended October 31, 1996 versus the same period for the prior
year. Sales for the Company's Fire Service, Inc. subsidiary were slightly
lower than the same period in 1995
Consolidated sales and net income for the six months ended October 31, 1996
were $7,649,000 and $594,000 respectively as compared to $7,358,000 and
$639,000 for the six months ended October 31, 1995. Over the same period,
sales for the Fire Controls division, which sells life safety and other
electronic systems for high rise buildings, were slightly higher than 1995.
Sales for the Company's FRCM Case-Acme subsidiary increased by 14% during
the six months ended October 31, 1996 versus the same period for the prior
year. Sales for the Company's Fire Service, Inc. subsidiary were 2% higher
than the same period in 1995. Fire Controls generated 47% of total
revenues, Fire Service 29% and FRCM Case-Acme 24%.
The Company's backlog for its life safety and other systems totaled
$2,911,000 at October 31, 1996 as compared to $2,839,000 at April 30, 1996.
The backlog for FRCM Case-Acme was $466,000 (for additions and retrofits to
its systems) at October 31, 1996 compared with a level of $339,000 on April
30, 1996. Despite the depressed economic condition and highly competitive
nature of the New York market, demand for the Company's systems. especially
in the retrofit area, and for its maintenance services remains steady.
Operating income for the six months ended October 31, 1996 was $1,347,000
as compared to $1,296,000 for the six months ended October 31, 1995. As a
percentage of revenue, the operating income for the six months ended
October 31, 1996 and 1995 was 18%.
Significant changes in balance sheet items from April 30, 1996 to October
31, 1996 are highlighted as follows:
1: Increases in accounts receivable primarily resulted from higher
sales.
2: Inventories increased as a result of stocking requirements for
current jobs.
3: The increases in accounts payable resulted from the build-up of
inventory.
4: The reduction in debt resulted from scheduled payments.
PART II
Item 1: Legal Proceedings -None
Item 4: The Annual Meeting of Shareholders of the Company was held on
November 13, 1996. At the meeting, Messrs. Orhan I. Sadik-Khan and Ronald
A. Levin were reelected as directors of the Company and Mr. Harry B. Levine
was elected director of the Company for the first time. Messrs. Sadik-
Khan, Levin and Levine were elected to serve as directors until the 1998
Annual Meeting of Shareholders.
Item 6: Exhibits and Reports on Form 8-K -None
Signatures
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Firecom, Inc.
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Dated:December 13, 1996 /s/ Paul Mendez
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Paul Mendez
Chairman of the Board
President and Chief Executive
Officer
/s/ William J. Lazich
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William J. Lazich
Vice President-Finance and
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT
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EXHIBIT 27 FINANCIAL DATA SCHEDULE