-----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, SMt9vbz66jv40IFAfCWN/itFTdhZr/8ESZzyTTi+kHnd0LVzc6E0nEXQiq3oA4UD dgznxet0rhAKV9OJfRRdMg== 0000925328-99-000056.txt : 19990512 0000925328-99-000056.hdr.sgml : 19990512 ACCESSION NUMBER: 0000925328-99-000056 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990511 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: 99617173 BUSINESS ADDRESS: STREET 1: 50 TICE BLVD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07675 BUSINESS PHONE: 2019309500 MAIL ADDRESS: STREET 1: 50 TICE BLVD STREET 2: 50 TICE BLVD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07675 FORMER COMPANY: FORMER CONFORMED NAME: SECURACOM INC DATE OF NAME CHANGE: 19970409 10-Q 1 FORM 10-Q FOR STRATESEC 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, 1999 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 5,878,522 shares of Common Stock, par value $0.01 per share, outstanding at May 5, 1999. STRATESEC INCORPORATED Quarter ended March 31, 1999 Index - --------------------------------------------------------------------------------
Page Part I. Financial information Item 1. Financial Statements........................................................................... 3 Balance Sheets as of December 31, 1998 and March 31, 1999 (unaudited).......................................................................................... 3 Statements of Operations for the three months ended March 31, 1998 and 1999 (unaudited).................................................................. 4 Statements of Cash Flows for the three months ended March 31, 1998 and 1999 (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 6. Exhibits and Reports on Form 8-K.............................................................. 11 Signature............................................................................................... 12
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements STRATESEC INCORPORATED BALANCE SHEETS
December 31, March 31, 1998* 1999 (Unaudited) ASSETS Current assets: Cash and cash equivalents.................................................. $ 442,582 $ 165,117 Cash-restricted............................................................ 1,900,000 -- Accounts receivable, net of allowance for doubtful accounts of $303,000 in 1998 and 1999.................................... 1,297,176 1,585,905 Costs and estimated earnings in excess of billings on uncompleted contracts.................................................... 1,440,485 1,420,869 Inventory.................................................................. 57,058 338,919 Prepaid expenses and other................................................. 171,404 45,911 -------------- -------------- Total currents assets................................................. 5,308,705 3,556,720 Plant and equipment, net...................................................... 460,932 433,750 Other assets.................................................................. 58,099 58,026 -------------- -------------- $ 5,827,736 $ 4,048,496 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Current maturities of capital lease obligations............................ $ 68,672 $ 68,672 Accounts payable........................................................... 1,455,840 1,166,983 Billings in excess of costs and estimated earnings on uncompleted contracts.................................................... 102,132 89,460 Accrued expenses and other................................................. 1,008,955 938,396 Notes payable.............................................................. 1,802,404 894,303 -------------- -------------- Total current liabilities............................................. $ 4,438,003 $ 3,157,814 Long-term liabilities: Capital lease obligations, less current maturities......................... 167,430 156,202 Shareholders' equity (deficiency): Common stock, $0.01 par value per share; authorized 20,000,000 shares; issued 6,103,502 and 5,973,522 outstanding shares in 1998 and 5,878,522 shares outstanding in 1999...................................................... 61,035 61,035 Treasury stock............................................................. (181,851) (377,028) Additional paid-in capital................................................. 21,143,824 21,143,824 Accumulated deficit........................................................ (19,800,705) (20,093,351) -------------- -------------- Total shareholders' equity............................................... 1,222,303 734,480 -------------- -------------- Total liabilities & shareholders' equity................................. $ 5,827,736 $ 4,048,496 ============== ==============
* Derived from audited financial statements as of December 31, 1998. The accompanying notes are an integral part of these statements. 3 STRATESEC INCORPORATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, 1998 1999 -------------- -------------- Earned revenues............................................................... $ 1,320,414 $ 1,510,597 Cost of earned revenues....................................................... 1,106,363 1,181,397 -------------- -------------- Gross profit............................................................... 214,051 329,200 Selling, general and administrative expenses................................................................... 1,073,039 578,022 -------------- -------------- Operating income (loss)....................................................... (858,988) (248,822) Loss on sale of plant and equipment........................................... (37,839) -- Interest and financing fees................................................... (12,808) (55,989) Interest and other income..................................................... 7,198 12,165 -------------- -------------- Net income (loss)............................................................. $ (902,437) $ (292,646) ============== ============== Net income (loss) per share - basic and diluted................................................................ $ (0.15) $ (0.05) ============== ============== Weighted average common shares outstanding................................................................ 6,103,522 5,983,457 ============== ==============
The accompanying notes are an integral part of these statements. 4 STRATESEC INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1998 1999 ------------- ------------- Cash flows from operating activities: Net income (loss)............................................................ $ (902,437) $ (292,646) ------------ -------------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization.............................................. 39,636 36,673 Loss of sale of plant and equipment........................................ 37,839 -- Amortization of debt discount.............................................. -- 11,899 Changes in operating assets and liabilities: Provision (recovery) for legal judgment...................................... -- 1,900,000 Accounts receivable.......................................................... 975,277 (288,729) Inventory (Material Stores on Site).......................................... -- (159,410) Costs and estimated earnings in excess of billings on uncompleted contracts.......................................... (301,477) 19,615 Prepaid expenses and other................................................... (9,811) 3,136 Other assets................................................................. (6,571) -- Accounts payable............................................................. (281,236) (288,857) Billings in excess of costs and estimated earnings on uncompleted contracts.......................................... 26,459 (12,672) Accrued expenses and other................................................... (373,094) (70,559) ------------ -------------- Total adjustments........................................................ 107,052 1,151,097 ------------ -------------- Net cash from operating activities....................................... (995,385) 858,451 ------------ -------------- Cash flows from investing activities: Sale of plant and equipment.................................................. 240,000 -- Acquisition of plant and equipment........................................... (18,425) (9,511) ------------ -------------- Net cash used by investing activities........................................ 221,575 (9,511) ------------ -------------- Cash flows from financing activities: Proceeds from notes payable.................................................. -- (920,000) Purchase of treasury stock................................................... -- (195,177) Principal payments on notes payable--shareholders............................. Principal payments of capital lease obligations................................................................ (12,041) (11,228) ------------ -------------- Net cash provided by financing activities.................................... (12,041) (1,126,405) ------------ -------------- Net (decrease) in cash and cash equivalents..................................... (585,851) (277,465) Cash and cash equivalents at beginning of period................................ 998,312 442,582 ------------ -------------- Cash and cash equivalents at end of period...................................... $ 412,461 $ 165,117 ============ ==============
The accompanying notes are an integral part of these statements. 5 NOTES TO FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited balance sheet as of March 31, 1999 and the unaudited statement of operations and statements of cash flows for the three months ended March 31, 1998 and 1999 are condensed financial statements 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 contained in a Form 10-K which the Company filed with the Securities and Exchange Commission on March 30, 1999. In the opinion of the Company, the unaudited financial statements at March 31, 1999 and for the three months ended March 31, 1998 and 1999, 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, 1999 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, 1998 and March 31, 1999 which are expected to be collected within one year are as follows:
December 31, March 31, 1998 1999 --------------- --------------- Costs incurred on contracts.................................................. $ 18,988,832 $ 20,170,228 Estimated earnings........................................................... 5,289,572 5,538,915 --------------- --------------- 24,278,404 25,754,143 Less billings to date........................................................ 22,940,051 24,422,743 --------------- --------------- $ 1,338,353 $ 1,331,409 =============== ===============
6 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 thereto 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 1999 was a successful quarter in terms of generation of new business. The Company was notified that it had been selected for over $5 million in new business that is scheduled to be performed during 1999. In addition to work for existing customers, the new awards include work for several new major corporate clients. As previously disclosed, the maintenance contract with the Metropolitan Washington Airport Authority was awarded to another company in January 1999. Although the Company's work for that customer, which accounted for a substantial portion of its first quarter revenues, was completed in April 1999, the loss of this work has been more than offset by the awards of new work during the first quarter. As of March 31, 1999, the Company's backlog was approximately $5.0 million, as compared with backlog of $4.0 million at December 31, 1998. Backlog consists of confirmed orders, including the balance of projects for which the Company has been notified it is the successful bidder even though a binding agreement has not been executed. 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. 7
Three Months Ended March 31, 1998 1999 Earned Revenues....................................................................... 100.0% 100.0% Cost of earned revenues............................................................... 83.8 78.2 ---------- ---------- Gross profit....................................................................... 16.2 21.8 Selling, general and administrative expenses.......................................... 81.3 38.3 ---------- ---------- Operating income (loss)............................................................ (65.1) (16.4) Loss on sale of plant and equipment................................................... (2.9) -- Interest and financing fees........................................................... (1.0) (3.7) Interest and other income............................................................. 0.6 0.8 ---------- ---------- Net income (loss).................................................................. (68.4)% (19.4)% ========== ==========
Three Months Ended March 31, 1999 Compared With Three Months Ended March 31, 1998 Revenues increased by 14% from $1.3 million in the three months ended March 31, 1998 to $1.5 million in the three months ended March 31, 1999. The increase was due primarily to revenue of new customers. In addition, revenues from the Metropolitan Washington Airport Authority increased from $0.4 million in the 1998 period to $0.6 million in the 1999 period. The revenue from MCI also increased by $0.2 million from the comparable period. Cost of earned revenues increased from $1.1 million in the three months ended March 31, 1998 to $1.2 million in the three months ended March 31, 1999, primarily due to the increase in revenues. Gross margin increased from 16.2% in the 1998 period to 21.8% in 1999. Selling, general and administrative expenses decreased 46.1% from $1.1 million in the three months ended March 31, 1998, to $0.6 million in the three months ended March 31, 1999. The decrease was primarily due to Company initiatives to reduce unnecessary administrative overhead costs. Interest expense and financing fees increased from $0.01 million in the three months ended March 31, 1998 to $0.06 million in the three months ended March 31, 1999. Net loss improved from a net loss of $0.9 million in 1998 to net loss of $0.3 million in 1999. 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 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 8 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 have an interest rate of 10%, are due on December 31, 1999 and are 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. All 185,000 warrants were outstanding at December 30, 1998. 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. As of March 31, 1999, the Company had cash of $0.2 million and working capital of $0.4 million. Based upon new contract wards and backlog in early 1999, the Company believes that it will be able to fund its cash requirements for the remainder of the year from operating cash flow. Forward-Looking Statements 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. Year 2000 Update The Company evaluated its internal operating systems and software for Year 2000 compliance. Based on this analysis, the Company replaced its accounting system to ensure Year 2000 compliance. The cost of this replacement was $25,000. The Company replaced several obsolete computers and upgraded the software on its remaining computers at an estimated cost of $20,000. The Company has reviewed its computers and remaining systems and does not foresee incurring any additional costs to make them Year 2000 compliant. The Company has installed and maintained an assortment of security systems for its customers. To address the issue of Year 2000 compliance, the Company has surveyed its suppliers for a status of 9 all software and hardware purchased on behalf of its customers. The Company has communicated the results to its customers and based on the status reports, it has made recommendations on how to resolve any Year 2000 problems and issues. The Company has evaluated the cost required to upgrade security systems installed by the Company for Year 2000 compliance and has proposed solutions for its customers. Based on these evaluations and solutions, the Company has begun to upgrade several of its customers' systems as they have requested. The Company expects to complete the upgrades for its existing customers by the fourth quarter of 1999. It should be noted that the Company does not manufacture its own system components, but uses components by other vendors; therefore, there is no internal software development cost associated with the upgrades for its customers' security systems. Since the Company has tested its internal systems for Year 2000 compliance, the Company does not feel that a contingency plan is necessary for internal operations. The risk associated with the Company's customers' upgrade is contingent upon its completing their Year 2000 compliance and providing the Company with the documentation and equipment necessary to complete Year 2000 upgrades for its customers prior to the end of 1999. The Company has identified alternative vendors to allow it to meet any customer requirements that are deemed critical. In addition, the Company's customers can supplement their automated systems with guard services if the security system upgrades are not complete by the end of 1999. If the Company's suppliers were unable to provide the Company with the equipment and information necessary to upgrade the security systems, it could result in the Company's inability to provide electronic security to customers in accord with current contract terms. This could lead to termination of the contract which would result in significant loss of revenue for the Company. Based upon the responses of our vendors on the surveys, the Company does not expect this to occur and does not have a contingency plan for this responsibility. 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings Although the Company is a defendant in certain suits arising from the normal conduct of its business, management does not believe that the resolution of this litigation will have a material adverse effect on the Company's financial position, results of operations, or cash flows. This litigation includes SecuraComm Consulting, Inc. v. Securacom, Incorporated. In this action, filed in the U.S. District Court for the district of New Jersey in October 1995, the plaintiff, a consulting company, sought injunctive relief and damages for alleged confusion in the marketplace and lost business resulting from the Company's alleged infringement of plaintiff's claimed service mark. In November 1997, the court ruled in favor of the plaintiff and enjoined the Company from using the name "Securacom, Incorporated" and awarded the plaintiff damages in the amount of $1,900,000. The Company appealed the decision and it was reversed in January 1999. 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 11 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 11, 1999 12 EX-11 2 CALCULATION OF WEIGHTED AVERAGE SHARES EXHIBIT 11 Calculation of Weighted Average Shares Outstanding for Net Income (Loss) Per Share
March 31, 1998 1999 ------------- --------------- Earnings: Net Income (Loss).......................................................... $ (902,437) $ (292,645) ============= ============== Shares: Weighted Average Number of Common Shares Outstanding............................................................. 6,103,522 5,983,457 ------------- -------------- Average Common Shares Outstanding and Equivalents.......................... 6,103,522 5,983,457 ============= ============== Net Income (Loss) Per Share................................................ $ (0.15) $ (0.05) ============= ==============
* -- Calculation would be antidilutive for 1998. EX-27 3 FDS --
5 1 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 165,117 0 1,889,584 (302,679) 338,919 3,556,720 976,900 (543,150) 4,048,496 2,194,839 0 0 0 61,035 734,479 4,048,496 1,510,597 1,510,597 1,181,397 1,181,397 578,022 0 52,204 (292,645) 0 (292,646) 0 0 0 (292,646) (0.15) 0
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