-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HDzlnTW9UnweNe7U3ssGFAtiq4ypx96KUz/2yXSsUAFdy5GnBm68ySnpR9eLwqDA 46va91VK6j/A2vGtVrvVjw== 0000925328-00-000046.txt : 20000516 0000925328-00-000046.hdr.sgml : 20000516 ACCESSION NUMBER: 0000925328-00-000046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRATESEC INC CENTRAL INDEX KEY: 0001037453 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DETECTIVE, GUARD & ARMORED CAR SERVICES [7381] IRS NUMBER: 222817302 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13427 FILM NUMBER: 635017 BUSINESS ADDRESS: STREET 1: 105 CARPENTER DRIVE SUITE C CITY: STERLING STATE: VA ZIP: 20164 BUSINESS PHONE: 7037098686 MAIL ADDRESS: STREET 1: 105 CARPENTER DRIVE SUITE C CITY: STERLING STATE: VA ZIP: 20164 FORMER COMPANY: FORMER CONFORMED NAME: SECURACOM INC DATE OF NAME CHANGE: 19970409 10-Q 1 1ST QUARTER FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2000 Commission File Number: 1-13427 STRATESEC INCORPORATED State of Incorporation: Delaware I.R.S. Employer I.D.: 22-2817302 105 Carpenter Drive Sterling, Virginia 20164 (703) 709-8686 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 twelve months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No ------------ There were shares of Common Stock, par value $0.01 per share, outstanding at May , 2000. 2 STRATESEC INCORPORATED Quarter ended March 31, 2000 Index Page Part I. Financial information Item 1. Financial Statements...........................................3 Balance Sheets as of December 31, 1999 and March 31, 2000 (unaudited).........................................................3 Statements of Operations for the three months ended March 31, 1999 and 2000 (unaudited).................................4 Statements of Cash Flows for the three months ended March 31, 1999 and 2000 (unaudited).................................5 Notes to Financial Statements.......................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................7 Part II. Other information Item 1. Legal Proceedings.............................................11 Item 4. Submission of Matters to a Vote of Security Holders...........11 Item 6. Exhibits and Reports on Form 8-K.............................12 Signature..............................................................13 PART I. FINANCIAL INFORMATION Item 1. Financial Statements STRATESEC INCORPORATED BALANCE SHEETS
December 31, March 31, 1999* 2000 -------------- --------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents.................................................. $ 2,831 $ 453,264 Accounts receivable, net of allowance for doubtful accounts of $675,000 in 1999 and 2000.................................... 2,233,262 3,937,008 Costs and estimated earnings in excess of billings on uncompleted contracts.................................................... 2,865,886 3,015,515 Inventory, net of allowance of 40,000 in 1999 and 2000..................... 245,903 412,981 Prepaid expenses........................................................... 4,490 3,143 -------------- -------------- Total currents assets................................................. 5,352,372 7,821,911 Property and equipment, net................................................... 546,520 570,441 Other assets ................................................................ 74,576 75,126 -------------- -------------- $ 5,973,468 $ 8,467,478 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Line of credit............................................................. $ 771,532 $ 1,105,417 Current maturities of capital lease obligations............................ 72,860 80,000 Accounts payable........................................................... 2,931,260 2,375,723 Billings in excess of costs and estimated earnings on uncompleted contracts.................................................... 234,338 324,397 Accrued expenses and other................................................. 627,156 621,776 Notes payable.............................................................. -- -- -------------- -------------- Total current liabilities............................................. $ 4,637,146 $ 4,507,313 Long-term liabilities: Capital lease obligations, less current maturities......................... 94,570 66,429 Shareholders' equity (deficiency): Common stock, $0.01 par value per share; authorized 20,000,000 shares; 6,890,189 issued and 6,638,189 outstanding shares in 1999 and8,628,377 issued and 8,326,377 outstanding in 2000............................................ 68,902 86,284 Treasury stock 252,000 shares in 1999 and 302,000 shares in 2000................................................... (409,564) (484,564) Additional paid-in capital................................................. 22,315,957 24,905,857 Accumulated deficit........................................................ (20,733,543) (20,613,841) ------------- ------------- Total shareholders' equity............................................... 1,241,752 3,893,736 -------------- -------------- Total liabilities & shareholders' equity................................. $ 5,973,468 $ 8,467,478 ============== ==============
* Derived from audited financial statements as of December 31, 1999. STRATESEC INCORPORATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 1999 2000 ------------- ------------- Earned Revenues................................ $ 1,510,597 $ 3,667,030 Cost of earned revenue......................... 1,181,397 2,231,988 ------------- ------------- Gross profit................................. 329,200 1,435,042 Selling, general and administrative expenses.................................... 578,022 1,230,443 ------------- ------------- Operating income (loss)...................... (248,822) 204,599 Interest and financing fees.................... (55,989) (85,370) Interest and other income...................... 12,165 473 ------------- ------------- Net income (loss)............................ $ (292,646) $ 119,702 =========== ============ Net income (loss) per share--basic............. (0.05) 0.02 ============ ============= Net income per share--diluted.................. N/a $ 0.02 ============= ============ Weighted average common shares Outstanding-basic........................... 5,983,457 7,240,861 ============= ============= Weighted average common shares Outstanding-diluted......................... n/a 7,547,893 ============= ============= 12 STRATESEC INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1999 2000 -------------- ------------- Cash flows from operating activities: Net income (loss)......................................................... $ (292,646) $ 119,702 ------------- ------------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization........................................... 36,673 41,361 Amortization of debt discount........................................... 11,899 Changes in operating assets and liabilities: Restricted cash........................................................... 1,900,000 Accounts receivable....................................................... (288,729) (1,153,746) Costs and estimated earnings in excess of billings on uncompleted contracts....................................... 19,615 (149,629) Inventory.................................................................... (159,410) (167,078) Prepaid expenses.......................................................... 3,136 1,347 Other assets.............................................................. -- (550) Accounts payable.......................................................... (288,857) (555,537) Billings in excess of costs and estimated earnings on uncompleted contracts....................................... (12,672) 90,059 Accrued expenses and other................................................ (70,559) (5,380) ------------- -------------- Total adjustments..................................................... 1,151,096 (1,899,153) -------------- -------------- Net cash from (used in) operating activities.......................... 858,450 (1,779,451) Cash flows from investing activities: Acquisition of plant and equipment........................................ (9,511) (65,282) ------------- ------------- Net cash provided (used) by investing activities.......................... (9,511) (65,282) ------------- ------------- Cash flows from financing activities: Proceeds from line of credit.............................................. -- 333,885 Proceeds from private placement of common stock........................... 2,057,282 Principal payments on debentures.......................................... (920,000) -- Principal payments on capital lease obligations........................... (11,228) (21,001) Purchase of treasury stock................................................ (195,177) (75,000) ------------- ------------- Net cash provided by (used in) financing activities....................... (1,126,405) 2,295,166 -------------- -------------- Net (decrease) in cash and cash equivalents.................................. (277,466) 450,433 Cash and cash equivalents at beginning of period............................. 442,582 2,831 -------------- -------------- Cash and cash equivalents at end of period................................... $ 165,116 $ 453,264 ============== ============== Supplemental Disclosures of Cash Flow Information: Cash paid for: Interest expense........................................................ $ 55,989 $ 85,370 Income taxes............................................................ $ -- $ -- Supplemental Schedule of Non-cash Financing and Investing Activities: Sale of common stock by receipt of note receivable...................... $ -- $ 550,000
NOTES TO FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited balance sheet as of March 31, 2000 and unaudited statement of operations and statement of cash flows for the three months ended March 31, 1999 and 2000 are condensed financial statements prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they omit certain information included in complete financial statements and should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission on March 30, 2000. In the opinion of the Company, the unaudited financial statements at March 31, 2000 and for the three months ended March 31, 1999 and 2000 include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for such periods. Results of operations for the three months ended March 31, 2000 are not necessarily indicative of results to be expected for the full year. 2. Costs and Estimated Earnings on Uncompleted Contracts Costs and estimated earnings on uncompleted contracts at December 31, 1999 and March 31, 2000 which are expected to be collected within one year are as follows: December 31, March 31, 1999 2000 ------------- -------------- Costs incurred on contracts............ $ 26,431,919 $ 28,663,907 Estimated earnings...................... 8,412,885 9,191,515 ------------ -------------- 34,844,804 37,855,422 Less billings to date................... 32,213,256 35,164,304 ------------ -------------- $ 2,631,548 $ 2,691,118 ============== ============== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion and analysis of the Company's financial condition and historical results of operations should be read in conjunction with the condensed financial statements and the related notes included elsewhere in this report. Overview The Company is a single-source provider of comprehensive, technology-based security solutions for medium and large commercial and government facilities in the United States and abroad. The Company offers a broad range of services, including: (i) consulting and planning; (ii) engineering and design; (iii) systems integration; and (iv) maintenance and technical support. The first quarter of 2000 continued the improvements in new business development. By the end of the first quarter the company had $20 million in backlog and follow-on projects identified with existing customers. During the first quarter the Company's strategy of adding large commercial clients with many facilities began to significantly expand the recurring revenue base from existing customers. The Company received over $5 million in new awards during the quarter. In addition, the Company added 10 new customers during the quarter. There were no customers lost during the quarter. The Company's focused marketing efforts to provide high quality integrated security systems to major commercial accounts will allow the companies to grow revenue and profits over the long term. The Company derives its revenues primarily from long-term, fixed-price contracts. Earnings are recognized based upon the Company's estimates of the cost and percentage of completion of individual contracts. Earned revenues equal the project's total contract amount multiplied by the proportion that direct project costs incurred on a project bear to estimated total project costs. Project costs include direct labor and benefits, direct material, subcontract costs, project related travel and other direct expenses. Clients are invoiced based upon negotiated payment terms for each individual contract. Terms usually include a 25% down payment and the balance as stages of the work are completed. Maintenance contracts are billed either in advance, monthly, or quarterly. As a result, the Company records as an asset, costs and estimated earnings in excess of billings, and as a liability, billings in excess of costs and estimated earnings. Results of Operations The following table sets forth the percentages of earned revenues represented by certain items reflected in the Company's statements of operations: Three Months Ended March 31, 1999 2000 --------- ---------- Earned revenues................................... 100.0% 100.0% Cost of earned revenues........................... 78.2 60.9 -------- ---------- Gross profit................................... 21.8 39.1 Selling general and administrative expenses....... 38.3 33.5 -------- ---------- Operating income (loss)........................ (16.5) 5.6 Interest and financing fees....................... (3.7) (2.3) Interest and other income......................... 0.8 0.0 -------- ---------- Net income (loss).............................. (19.4)% 3.3% ------ --------- Three Months Ended March 31, 2000 Compared With Three Months Ended March 31, 1999 Revenues increased by 142% from $1.5 million in the three months ended March 31, 1999 to $3.7 million in the three months ended March 31, 1999. The increase was due primarily to revenue of new customers and increased revenue from existing customers. The increase in revenue was primarily due to the growth of large commercial accounts such as MCI Worldcom and Nokia. Cost of earned revenues increased from $12 million in the three months ended March 31, 1999 to $2.2 million in the three months ended March 31, 2000, primarily due to the increase in revenues. Gross margin increased from 21.8% in the 1999 period to 39.1% in 2000. Margins improved due to improved pricing from key vendors on several large projects and higher rates for labor. Selling, general and administrative expenses increased 113% from $.6 million in the three months ended March 31, 1999 to $1.2 million in the three months ended March 31, 2000. The increase was primarily due to Company initiatives to increase business development, and to manage the increased business. The growth in selling, general and administrative expenses was proportionately less than the growth in revenues thereby decreasing the expenses as a percentage of revenues. Interest expense and financing fees increased from $0.06 million in the three months ended March 31, 1999 to $0.1 million in the three months ended March 31, 2000. The growth in Interest and Financing Fees was proportionately less than the growth in revenue thereby decreasing the Interest and Financing Fees as a percentage of revenue. Net loss improved from a net loss of $0.3 million in 1999 to net income of $0.1 million in 2000. The improvement was due to improved gross margins, constrained growth in selling, general and administrative expenses and dramatically improved revenue. Liquidity and Capital Resources In October 1997, the Company completed its initial public offering of Common Stock, which resulted in net proceeds to the Company of approximately $9.7 million after payment of offering expenses by the Company. In the fourth quarter of 1997, the Company received proceeds of approximately $0.7 million upon the exercise of warrants to purchase 269,382 shares of Common Stock by employees. In October 1997, the Company used proceeds of the initial public offering to repay $3.4 million of outstanding notes payable. During April 1998, the Board of Directors approved the issuance of up to $2.0 million of convertible subordinated debentures to provide additional working capital. As of May 13, 1998, the Company had issued and sold $1,450,000 of debentures. The Company sold an additional $400,000 of debentures as of August 25, 1998. The debentures had an interest rate of 10%, were due on December 31, 1999 and were convertible into Common Stock of the Company at $8.50 per share. In addition, the holders were issued 100 warrants for each $1,000 of investment with an exercise price of $2.50 and a term of three years. The value of the warrants of $71,394 was determined based upon the Black Scholes Valuation Model and was recorded as additional paid-in capital. During February 1999, the $1.9 million the Company was required to post as collateral for a bond pending its appeal of a lawsuit was released when the trial court's judgment was reversed. In February 1999, the Company repaid $920,000 of the outstanding debentures. During September 1999 all of the holders of the company's 10% senior notes totaling $930,000 due December 31, 1999, have agreed to exchange their notes for the Company's common stock valued at $1.50 per share. Additionally, to support the significant increase in business, the board approved a private placement of 500,000 shares at $1.50 per share, which was subsequently increased to 1,204,855 shares. The board also approved the sale of up to 21% equity in the Company to a minority partner. Netcom Solutions International subsequently purchased approximately 8% or 700,000 shares of the Company at $1.50 per share. As of March 23, 2000, all of these transactions had been completed. In summary, $930,000 of debt was converted to equity, $1.8 million was received by the private placement and $1.05 million in the form of cash and a short-term note was received from the sale of a minority interest. As of March 31, 2000, the Company had cash of $0.4 million and working capital of $0.7 million. The Company is pursuing obtaining financing/credit facilities to increase working capital to fund a significant ramp up of new business. This Form 10-Q includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act. All statements, other than statements of historical fact, included in this Form 10-Q that addresses activities, events, or developments that the Company expects, projects, believes, or anticipates will or may occur in the future, including matters having to do with existing or future contracts, the Company's ability to fund its operations and repay debt, business strategies, expansion and growth of operations and other such matters, are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, including general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by the Company, the Company's performance on its current contracts and its success in obtaining new contracts, the Company's ability to attract and retain qualified employees, and other factors, many of which are beyond the Company's control. You are cautioned that these forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in such statements. PART II. OTHER INFORMATION Item 1. Legal Proceedings [Any new or pending?] Item 2. Changes in Securities and Use of Proceeds. In the fourth quarter of 1999 and the first quarter of 2000, the Company completed a private placement of 1,204,855 shares of its common stock to a limited number of sophisticated and/or accredited investors at a price of $1.50 per share for aggregate cash proceeds of $1,807,282. In the first quarter of 2000 the company sold 700,000 shares of its common stock to a company at a price of $1.50 per share for aggregate proceeds of $1,050,000 consisting of cash of $500,000 and a note payable of $550,000. Each of these transactions was exempt from the registration requirements of the Securities Act of 1933 (the "Act") pursuant to section 4(2) of the Act because they did not involve a public offering of securities. Item 6. Exhibits and Reports on Form 8-K a. Exhibits 11.1 Calculation of Net Income (Loss) Per Share 27.1 Financial Data Schedule b. Reports on Form 8-K. None 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. STRATESEC INCORPORATED /s/BARRY MCDANIEL Barry McDaniel Chief Operating Officer May , 2000 EX-11 2 CALCULATION OF WEIGHTED AVERAGE SHARES EXHIBIT 11 Calculation of Weighted Average Shares Outstanding for Net Income (Loss) Per Share
Three Months Ended March 31, 1999 2000 ------------- -------------- Earnings: Net Income (Loss).......................................................... $ (292,646) $ 119,702 ============ ============== Shares: Weighted Average Number of Common Shares Outstanding............................................................. 5,983,457 7,240,861 ------------- -------------- Average Common Shares Outstanding and Equivalents.......................... n/a 7,547,893 ============= ============== Net Income (Loss) Per Share-Basic.......................................... $ (0.05) $ 0.02 ============ ============== Net Income (Loss) Per Share-Diluted........................................ $ n/a $ 0.02 ============= ==============
* -- Calculation would be antidilutive for 1998. EX-27 3 FDS --
5 1 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 453,264 0 4,612,008 (675,000) 412,981 7,821,911 1,280,252 709,811 8,467,478 4,507,313 0 0 0 86,284 484,564 8,467,478 3,667,030 3,667,030 2,231,988 2,231,998 1,230,443 0 85,370 111,702 0 119,702 0 0 0 119,702 0.02 0.02
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