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 January 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
COMMISSION FILE NUMBER 0-12873
-------
FIRECOM, INC.
--------------------------------------------------------------------------
(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 March 7, 1997, the Registrant had 4,964,675 shares of Common Stock
outstanding.
INDEX
-----
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet-January 31, 1997 3-4
Consolidated Statements of Income-
Three Months and Nine Months Ended
January 31, 1997 and 1996 5
Consolidated Statement of Cash Flows-
Nine Months Ended January 31, 1997 and 1996 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
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JANUARY 31, 1997
----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,999,000
Accounts receivable, net of
allowance for doubtful
accounts of $439,000. 4,382,000
Inventories 1,422,000
Deferred tax asset 438,000
Prepaid expenses and other 66,000
-----------
Total current assets $ 8,307,000
-----------
FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT, $ 1,189,000
Less: Accumulated Depreciation & Amortization 662,000
-----------
Total Fixed Assets $ 527,000
-----------
OTHER ASSETS
Product Enhancement $ 508,000
Less: Accumulated Amortization 421,000
------------
Total Product Enhancement $ 87,000
Prepaid Loan Fees $ 25,000
-----------
Total Other Assets $ 112,000
-----------
TOTAL ASSETS $8,946,000
==========
FIRECOM, INC. and SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JANUARY 31, 1996
----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 113,000
Accounts payable 497,000
Accrued expenses 865,000
Income taxes payable 181,000
---------
Total current liabilities $1,656,000
----------
LONG-TERM LIABILITIES:
Notes payable $ 523,000
Accrued compensation 225,000
Deferred tax liabilities 63,000
---------
Total Long-Term liabilities $ 811,000
-----------
MANDATORY REDEEMABLE COMMON STOCK 590,000
-----------
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 1,680,000
Retained Earnings 3,129,000
---------
Sub-Total $6,399,000
Less: Treasury Stock, at cost, 447,663 shares 410,000
----------
Total Shareholders' Equity $5,889,000
------------
TOTAL LIABILITIES & EQUITY $8,946,000
============
FIRECOM, INC. and SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JANUARY 31 JANUARY 31
---------- ----------
1997 1996 1997 1996
---- ---- ---- ----
NET SALES:
Product $2,167,000 $2,030,000 $6,525,000 $6,257,000
Service 1,580,000 1,622,000 4,871,000 4,753,000
--------- --------- --------- ----------
Total Sales 3,747,000 3,652,000 11,396,000 11,010,000
--------- --------- ----------- ---------
COST OF SALES:
Product 1,278,000 1,075,000 3,647,000 3,580,000
Service 825,000 750,000 2,394,000 2,299,000
------- ------- --------- ---------
Total Cost of 2,103,000 1,825,000 6,041,000 5,879,000
Sales --------- --------- --------- ---------
GROSS PROFIT 1,644,000 1,827,000 5,355,000 5,131,000
--------- --------- --------- ----------
OPERATING EXPENSES:
Selling, general and 915,000 893,000 2,911,000 2,649,000
administrative
Research and
development 174,000 161,000 542,000 413,000
------- ------- ------- -------
Total operating
expenses 1,089,000 1,054,000 3,453,000 3,062,000
--------- --------- --------- ---------
INCOME FROM OPERATIONS 555,000 773,000 1,902,000 2,069,000
--------- --------- --------- ---------
OTHER EXPENSES
Interest 6,000 22,000 27,000 72,000
Other 64,000 2,000 151,000 7,000
------ ----- ------- -----
Total Other 70,000 24,000 178,000 79,000
Expenses ------ ------ ------- ------
INCOME BEFORE INCOME 485,000 749,000 1,724,000 1,990,000
TAX
INCOME TAX EXPENSE 227,000 346,000 872,000 948,000
NET INCOME $ 258,000 $ 403,000 $ 852,000 $1,042,000
======= ======= ======= ==========
NET INCOME APPLICABLE
TO COMMON SHAREHOLDERS $ 226,000 $ 371,000 $ 765,000 $ 945,000
NET INCOME PER COMMON
SHARE $ .04 $ .07 $ .13 $ .17
WEIGHTED AVERAGE
NUMBER OF SHARES USED
IN COMPUTING EPS 5,751,000 5,468,000 5,766,000 5,468,000
FIRECOM, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
-----------------
JANUARY 31
----------
1997 1996
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 852,000 $1,042,000
---------- ----------
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and amortization 73,000 59,000
Provision for doubtful 120,000 199,000
accounts
Deferred income tax credits -0- -0-
Changes in operating assets
and liabilities:
(Increase) in accounts (785,000) (452,000)
receivable,
(Increase) in inventories (270,000) (134,000)
(Increase) in other current (9,000) (16,000)
and noncurrent assets
(Increase/(Decrease) in (9,000) 154,000
accounts payable, accr. exp.
& other ---------- ----------
Total adjustments (880,000) (190,000)
-------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (28,000) 852,000
-------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (125,000) (72,000)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of debt (100,000) (441,000)
Purchase of treasury shares -0- (175,000)
Proceeds from stock issue 87,000 87,000
-------- --------
NET CASH USED IN FINANCING (13,000) (529,000)
ACTIVITIES: -------- ---------
NET INCREASE/(DECREASE) IN (166,000) (251,000)
CASH
CASH:
Beginning of year 2,165,000 1,704,000
--------- ---------
End of nine months $1,999,000 $1,955,000
========== ==========
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 statement 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 January 31, 1997 and the results of operations for the three and nine
months ended January 31, 1997 and 1996 and statement of cash flows for the
nine months ended January 31, 1997 and 1996.
NOTE 2: INVENTORIES
Inventories consist of the following at January 31, 1997:
Raw materials and sub-assemblies $1,366,000
Work-in-process 56,000
----------
$1,422,000
==========
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at January 31, 1997:
Building improvements $ 254,000
Machinery and equipment 595,000
Furniture and fixtures 340,000
----------
$1,189,000
Less accumulated depreciation and amortization
662,000
----------
$ 527,000
==========
NOTE 4: NOTES PAYABLE
The Company's long-term debt consists of the following at January 31,
1997:
Notes payable to banks and other:
First mortgage note payable $ 390,000
Other note payable 246,000
----------
$ 636,000
Less current portion 113,000
----------
$ 523,000
==========
NOTE 5: INCOME TAXES
The components of the Company's deferred tax assets and liabilities at
January 31, 1997 under SFAS 109 are as follows:
State and
Federal City Total
------- -------- ------
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, 131,000
inventory and other) 80,000 51,000 131,000
------- ------- --------
266,000 172,000 438,000
Deferred tax liability, tax
depreciation in excess of
book depreciation (38,000) (25,000) (63,000)
------- ------- --------
$226,000 $147,000 $375,000
========= ======== ========
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 January
31, 1997, warrants for 583,331 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
January 31, 1997, the Company has accrued $194,000 of incentive
compensation and $102,000 of accrued fringe benefits.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(unaudited)
--------------------------------------------------------------------------
LIQUIDITY
Net cash from operations declined by $28,000 for the nine months ended
January 31, 1997 reflecting increases in accounts receivable and
inventories (to support the higher level of business) and declines in
accounts payable and accrued expenses. 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
January 31, 1997) and a first mortgage note of $429,000 at April 30, 1996
(the balance was $390,000 as of January 31, 1997). 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 January 31, 1997, preferred dividends in arrears were
approximately $844,000.
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 January 31, 1997
were $3,747,000 and $258,000 respectively as compared to $3,652,000 and
$403,000 for the three months ended January 31, 1996. Over the same
period, Product sales (life safety and other electronic systems for high
rise buildings) were 6.7% higher than the same period in 1996. Service
sales were 2.6% lower for the three months ended January 31, 1997 versus
the same period in 1996.
Consolidated sales and net income for the nine months ended January 31,
1997 were $11,396,000 and $852,000 respectively as compared to $11,010,000
and $1,042,000 for the nine months ended January 31, 1996. Over the same
period, Product sales were 4.3% higher than 1996. Service sales were 2.5%
higher for the nine months ended January 31, 1997 versus the same period in
1996. 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
$2,501,000 at January 31, 1997 as compared to $2,839,000 at April 30, 1996.
The backlog for FRCM Case-Acme was $402,000 (for additions and retrofits to
its systems) at January 31, 1997 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 system's.
especially in the retrofit area, and for its maintenance services remains
steady.
Operating income for the nine months ended January 31, 1997 was $1,902,000
as compared to $2,069,000 for the nine months ended January 31, 1996. As a
percentage of revenue, the operating income for the nine months ended
January 31, 1997 was 17% versus 18% in 1996.
Significant changes in balance sheet items from April 30, 1996 to January
31, 1997 are highlighted as follows:
1: Increases in accounts receivable resulted from a higher level of
sales and slower collections primarily in the Fire Controls Division
due to a change in mix of business.
2: Inventories increased as a result of stocking requirements
primarily due to the change in mix of business in the Fire Controls
Division.
3: The reduction in debt resulted from scheduled payments.
PART 11
Item 1: Legal Proceedings -None
Item 4: The Annual Meeting of Shareholders of the Company was held on
November 13, 1996. The only matter voted upon at the meeting was the
election of directors. The three nominees for the 1998 class of
directors were elected without opposition. Orhan I. Sadik-Khan
received 3,242,516 votes and Ronald A. Levin and Harry B. Levine each
received 3,241,516 votes with 1,000 shares withheld.
Item 6: Exhibits and Reports on Form 8-K -None
SIGNATURES
Firecom, Inc.
-------------
Dated: March 13, 1997 /s/ Paul Mendez
____________________ __________________________
Paul Mendez
Chairman of the Board
President and Chief Executive
Officer
/s/ Williamn J. Lazich
_________________________
William J. Lazich
Vice President-Finance and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
_______
EXHIBIT 27 FINANCIAL DATA SCHEDULE