-----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, OrpjNh71pUw7K2Qp6IclkPDUSGa+Tx+shSQK04CszBKL0dAW9o+ASCCrM07DfxeE 7LpfGU2xLWUWMFiGip6lWg== 0000925328-99-000082.txt : 19990813 0000925328-99-000082.hdr.sgml : 19990813 ACCESSION NUMBER: 0000925328-99-000082 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 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: 99686086 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 SECOND 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 June 30, 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 5,873,522 shares of Common Stock, par value $0.01 per share, outstanding at August 7, 1999. STRATESEC INCORPORATED Quarter ended June 30, 1999 Index - -------------------------------------------------------------------------------- Page Part I. Financial information Item 1. Financial Statements............................................3 Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)..........................................................3 Statements of Operations for the three months ended June 30, 1998 and 1999 and the six months ended June 30, 1998 and 1999 (unaudited)...................................4 Statements of Cash Flows for the six months ended June 30, 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 4. Submission of Matters to a Vote of Security Holders............11 Item 6. Exhibits and Reports on Form 8-K..............................12 Signature...............................................................13 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements STRATESEC INCORPORATED BALANCE SHEETS
December 31, June 30, 1998* 1999 (Unaudited) ASSETS Current assets: Cash and cash equivalents.................................................. $ 442,582 $ 280,096 Cash-restricted............................................................ 1,900,000 -- Accounts receivable, net of allowance for doubtful accounts of $303,000 in 1998 and 1999.................................... 1,297,176 1,509,467 Costs and estimated earnings in excess of billings on uncompleted contracts.................................................... 1,440,485 1,487,964 Inventory.................................................................. 57,058 245,995 Prepaid expenses and other................................................. 171,404 54,771 -------------- -------------- Total currents assets................................................. 5,308,705 3,578,292 Plant and equipment, net...................................................... 460,932 491,435 Other assets.................................................................. 58,099 58,026 -------------- -------------- $ 5,827,736 $ 4,127,753 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Current maturities of capital lease obligations............................ $ 68,672 $ 73,123 Accounts payable........................................................... 1,455,840 1,447,774 Billings in excess of costs and estimated earnings on uncompleted contracts.................................................... 102,132 89,460 Accrued expenses and other................................................. 1,008,955 1,048,527 Notes payable.............................................................. 1,802,404 906,202 -------------- -------------- Total current liabilities............................................. $ 4,438,003 $ 3,565,086 Long-term liabilities: Capital lease obligations, less current maturities......................... 167,430 147,654 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) (383,521) Additional paid-in capital................................................. 21,143,824 21,143,824 Accumulated deficit........................................................ (19,800,705) (20,406,323) -------------- -------------- Total shareholders' equity............................................... 1,222,303 415,014 -------------- -------------- Total liabilities & shareholders' equity................................. $ 5,827,736 $ 4,127,753 ============== ============== * 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 Six Months Ended June 30, June 30, 1998 1999 1998 1999 ------------- ------------- ------------- ------------- Earned Revenue................................. $ 1,372,086 $ 2,180,293 $ 2,692,500 $ 3,690,891 Provision for contract adjustment.............. 2,491,156 -- 2,491,156 -- Cost of earned revenue......................... 1,178,681 1,402,699 2,285,044 2,584,096 ------------- ------------- ------------- ------------- Gross profit................................... (2,297,751) 777,594 (2,083,700) 1,106,794 Selling, general and administrative expenses.................................... 1,010,493 1,031,343 2,083,532 1,609,365 ------------- ------------- ------------- ------------- Operating loss................................. (3,308,244) (253,749) (4,167,232) (502,571) Loss on sale of plant and equipment............ -- -- (37,839) -- Interest and financing fees.................... (36,296) (60,298) (49,104) (116,287) Interest and other income...................... 58,781 1,074 65,979 13,240 ------------- ------------- ------------- ------------- Net income (loss).............................. (3,285,759) (312,973) (4,188,196) (605,618) ============= ============= ============= ============= Net income (loss) per share--basic and diluted................................. (0.54) (0.05) (0.69) (0.10) ============= ============= ============= ============= Weighted average common shares outstanding................................. 6,103,522 5,980,621 6,103,522 5,980,621 ============= ============= ============= =============
The accompanying notes are an integral part of these statements. 4 STRATESEC INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1998 1999 ------------- ------------- Cash flows from operating activities: Net income (loss)............................................................ $ (4,188,196) $ (605,618) ------------ -------------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization.............................................. 70,233 74,993 Loss of sale of plant and equipment........................................ 39,162 -- Amortization of debt discount.............................................. -- 23,798 Cash restriction........................................................... 123,491 -- Changes in operating assets and liabilities: Provision (recovery) for legal judgment...................................... -- 1,900,000 Accounts receivable.......................................................... 2,108,467 (212,291) Inventory (Material Stores on Site).......................................... -- (188,937) Costs and estimated earnings in excess of billings on uncompleted contracts.......................................... 1,095,880 (47,479) Prepaid expenses and other................................................... (27,120) 116,633 Other assets................................................................. (8,177) 73 Accounts payable............................................................. (664,820) (8,066) Billings in excess of costs and estimated earnings on uncompleted contracts.......................................... 56,834 (12,672) Accrued expenses and other................................................... (350,158) 39,572 ------------ -------------- Total adjustments........................................................ 2,443,792 1,685,623 ------------ -------------- Net cash from (used in) operating activities............................. (1,744,404) 1,080,005 ------------ -------------- Cash flows from investing activities: Sale of plant and equipment.................................................. 240,000 -- Acquisition of plant and equipment........................................... (53,908) (105,495) ------------ -------------- Net cash used by investing activities........................................ 186,092 (105,495) ------------ -------------- Cash flows from financing activities: Proceeds from notes payable.................................................. 1,450,000 -- Purchase of treasury stock................................................... -- (201,670) Principal payments on notes payable--shareholders............................ -- (920,000) Principal payments of capital lease obligations................................................................ (30,561) (15,325) ------------ -------------- Net cash provided by (used in) financing activities.......................... 1,419,439 (1,136,995) ------------ -------------- Net (decrease) in cash and cash equivalents..................................... (138,873) (162,486) Cash and cash equivalents at beginning of period................................ 998,312 442,582 ------------ -------------- Cash and cash equivalents at end of period...................................... $ 859,439 $ 280,096 ============ ==============
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 June 30, 1999 and unaudited statements of operations for the three months ended June 30, 1998 and 1999 and the six months ended June 30, 1998 and 1999 and the unaudited statements of cash flows for the six months ended June 30, 1998 and 1999 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 Companys Annual Report on Form 10-K for the year ended December 31, 1998 filed with the Securities and Exchange Commission on March 30, 1999. In the opinion of the Company, the unaudited financial statements at June 30, 1999 and for the three and six months ended June 30, 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 and six months ended June 30, 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 June 30, 1999 which are expected to be collected within one year are as follows: December 31, June 30, 1998 1999 --------------- --------------- Costs incurred on contracts................. $ 18,988,832 $ 21,778,225 Estimated earnings.......................... 5,289,572 6,141,839 --------------- --------------- 24,278,404 27,920,064 Less billings to date....................... 22,940,051 26,521,559 --------------- --------------- $ 1,338,353 $ 1,398,504 =============== =============== 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 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. During the second quarter of 1999, the Company continued to receive new awards and add new clients. In addition to work for existing customers, the new awards include work for several new major corporate clients. As of June 30, 1999, the Company's backlog was approximately $7.0 million, as compared with backlog of $5.0 million at March 31, 1999. 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. 7 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 Six Months Ended March 31, June 30, ------------------------ ------------------------ 1998 1999 1998 1999 ----------- ----------- ----------- ----------- Earned revenues........................................... 100.0% 100.0% 100.0% 100.0% Provision for contract adjustment......................... 181.6 0.0 92.5 0.0 Cost of earned revenues................................... 85.9 64.3 84.9 70.0 ---------- ---------- ---------- ---------- Gross profit........................................... (167.5) 35.7 (77.4) 30.0 Selling general and administrative expenses............... 73.6 47.3 77.4 43.6 ---------- ---------- ---------- ---------- Operating income (loss)................................ (241.1) (11.6) (154.8) (13.6) Loss on sale of plant and equipment....................... 0.0 0.0 (1.4) 0.0 Interest and financing fees............................... (2.6) (2.8) (1.7) (3.2) Interest and other income................................. 4.3 0.0 2.5 0.4 ---------- ---------- ---------- ---------- Net income (loss)...................................... (239.5)% (14.5)% (154.1)% (16.4)% --------- --------- --------- ---------
Three Months Ended June 30, 1999 Compared With Three Months Ended June 30, 1998 Revenues increased by 59% from $1.4 million in the three months ended June 30, 1998 to $2.2 million in the three months ended June 30, 1999. The increase was due primarily to revenue from new customers. Cost of earned revenues increased from $1.2 million in the three months ended June 30, 1998 to $1.4 million in the three months ended June 30, 1999, primarily due to the increase in revenues. Gross margin improved from (167.5)% in the 1998 period to 35.7% in 1999. Selling, general and administrative expenses increased by 0.2% from $1.01 million in the three months ended June 30, 1998 to $1.03 million in the three months ended June 30, 1999. Interest expense and financing fees increased from $0.04 million in the three months ended June 30, 1998 to $0.06 million in the three months ended June 30, 1999. Net loss improved from a net loss of $3.3 million in 1998 to net loss of $0.3 million in 1999. Six Months Ended June 30, 1999 Compared With Six Months Ended June 30, 1998. Revenues increased by 37% from $2.7 million in the six months ended June 30, 19998 to $3.7 million in the six months ended June 30, 1999. The increase was due primarily to revenue from new customers. Cost of earned revenues increased from $2.3 million in the six months ended June 30, 1998 to $2.6 million in the six months ended June 30, 1999, primarily due to the increase in revenues. Gross margin increased from (77.4)% in the 1998 period to 30% in 1999. 8 Selling, general and administrative expenses decreased 23% from $2.1 million in the six months ended June 30, 1998, to $1.6 million in the six months ended June 30, 1999. The decrease was primarily due to Company initiatives to reduce unnecessary administrative overhead costs. Interest expense and financing fees increased from $0.04 million in the six months ended June 30, 1998 to $0.1 million in the six months ended June 30, 1999. Net loss improved from a net loss of $4.2 million in 1998 to net loss of $0.6 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 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 June 30, 1999, the Company had cash of $0.3 million. The Company is pursuing obtaining financing/credit facilities to increase working capital to fund a significant ramp up of new business. 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 9 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 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 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting of shareholders on May 25, 1999. At the meeting, the shareholders elected the following individuals as members of the Board of Directors: Wirt D. Walker, III, Charles W. Archer, Barry W. McDaniel, Mishal Yousef Saud Al Sabah, Marvin P. Bush, Robert B. Smith, and lt. General James A. Abrahamson, USAF (Retired). The voting results of the election of directors and the other matters voted upon at the meeting are as follows: Election of Directors:
Votes Withheld For Authority Nominee: Wirt D. Walker, III....................................... 4,274,542 19,700 Barry W. McDaniel......................................... 4,281,042 13,200 Charles W. Archer......................................... 4,281,042 13,200 Mishal Yousef Saud Al Sabah............................... 4,281,042 13,200 Robert B. Smith........................................... 4,277,042 17,200 Marvin P. Bush............................................ 4,277,042 17,200 James A. Abrahamson....................................... 4,281,042 13,200
Other Matters:
Abstentions and Description of Votes Votes Broker Matter For Against Non-Votes Approval of amendment to the Company's 1997 Stock Option Plan................................ 3,424,794 25,850 1,025,598
11 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 12 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 August 12, 1999 13 EX-11 2 CALCULATION OF WEIGHTED AVERAGE SHARES EXHIBIT 11 Calculation of Weighted Average Shares Outstanding for Net Income (Loss) Per Share
June 30, 1998 1999 ------------- --------------- Earnings: Net Income (Loss).......................................................... $ (4,188,196) $ (605,618) ============= ============== Shares: Weighted Average Number of Common Shares Outstanding............................................................. 6,103,522 5,980,621 ------------- -------------- Average Common Shares Outstanding and Equivalents.......................... 6,103,522 5,980,621 ============= ============== Net Income (Loss) Per Share................................................ $ (0.69) $ (0.10) ============= ==============
* -- Calculation would be antidilutive for 1998. EX-27 3 FDS --
5 1 U.S. DOLLARS 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 280,096 0 1,812,146 (302,679) 245,995 3,578,292 1,075,339 583,904 4,127,753 3,565,086 0 0 0 61,035 (383,521) 4,127,753 3,690,891 3,690,891 2,584,096 2,584,096 1,609,365 0 97,775 (605,618) 0 (605,618) 0 0 0 (605,618) (0.10) 0
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