SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 0-18684
Command Security Corporation
(Exact name of registrant as specified in its charter)
New York 14-1626307
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Lexington Park, Lagrangeville, New York 12540
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (845) 454-3703
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)
Yes ___ No _X_
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practical date: 6,287,343 (as of November 13, 2003).
COMMAND SECURITY CORPORATION
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Condensed Statements of Operations -
three months and six months ended
September 30, 2003 and 2002 (unaudited) 2
Condensed Balance Sheets -
September 30, 2003 and March 31, 2003
(unaudited) 3
Condensed Statements of Changes in
Stockholders' Equity - six months ended
September 30, 2003 and 2002
(unaudited) 4
Condensed Statements of Cash Flows -
six months ended September 30, 2003 and 2002
(unaudited) 5 - 6
Notes to Condensed Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10 - 15
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 16
Item 4. Controls and Procedures 16
PART II. Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
Exhibit 31.1 Certification of William C. Vassell 18
Exhibit 31.2 Certification of Graeme R. Halder 19
Exhibit 99.1 ss.1350 Certification of William C. Vassell 20
Exhibit 99.2 ss.1350 Certification of Graeme R. Halder 21
Exhibit 99.3 Press Release 22 - 23
PART I. Financial Information
Item 1. Financial Statements
COMMAND SECURITY CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
------------------------------- -------------------------------
September 30 September 30 September 30 September 30
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenue $18,983,436 $27,470,101 $35,557,261 $55,741,253
Cost of revenue 15,979,450 20,766,331 29,808,797 42,680,743
----------- ----------- ----------- -----------
Gross profit 3,003,986 6,703,770 5,748,464 13,060,510
----------- ----------- ----------- -----------
Operating expenses
General and administrative expenses 2,604,722 3,671,677 5,327,588 6,959,270
Provision for doubtful accounts, net (9,948) 888,673 62,064 1,181,716
----------- ----------- ----------- -----------
2,594,774 4,560,350 5,389,652 8,140,986
----------- ----------- ----------- -----------
Operating profit 409,212 2,143,420 358,812 4,919,524
Interest income 18,708 24,041 41,332 48,162
Interest expense (103,259) (142,455) (220,026) (340,675)
Equipment dispositions -0- 6,350 9,566 10,405
----------- ----------- ----------- -----------
Income before income taxes 324,661 2,031,356 189,684 4,637,416
Provision for income taxes (77,454) (874,733) (77,454) (1,331,072)
----------- ----------- ----------- -----------
Net income 247,207 1,156,623 112,230 3,306,344
Preferred stock dividends (40,674) (40,674) (81,348) (366,068)
----------- ----------- ----------- -----------
Net income applicable to
common stockholders $ 206,533 $ 1,115,949 $ 30,882 $ 2,940,276
=========== =========== =========== ===========
Net income per common share
Basic $ 0.03 $ 0.18 $ 0.005 $ 0.47
=========== =========== =========== ===========
Diluted $ 0.03 $ 0.14 $ 0.005 $ 0.37
=========== =========== =========== ===========
Weighted average number
of common shares outstanding
Basic 6,287,343 6,287,343 6,287,343 6,287,343
=========== =========== =========== ===========
Diluted 6,336,400 7,753,029 6,339,376 7,844,369
=========== =========== =========== ===========
See accompanying notes to condensed financial statements.
2
COMMAND SECURITY CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, March 31,
2003 2003
----------- -----------
ASSETS
Current assets:
Accounts receivable, net of allowance for doubtful accounts
of $339,018 and $2,432,337 respectively 14,550,500 17,527,395
Prepaid expenses 548,541 821,300
Other receivables 291,697 330,930
----------- -----------
Total current assets 15,390,738 18,679,625
----------- -----------
Property and equipment, net 629,046 837,814
----------- -----------
Other assets:
Intangible assets, net 96,250 75,322
Restricted cash 107,105 256,308
Accounts receivable disputed, net of allowance for doubtful
accounts of $1,000,000 1,930,379 -0-
Other receivables, net 588,013 505,769
Other assets 296,516 352,467
----------- -----------
Total other assets 3,018,263 1,189,866
----------- -----------
Total assets $19,038,047 $20,707,305
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 930,823 $ 1,081,068
Current maturities of long-term debt 403,538 133,983
Current maturities of obligations under capital leases 63,830 67,819
Short-term borrowings 8,115,874 9,046,106
Accounts payable 814,801 602,096
Due to service companies 258,195 188,095
Preferred dividends payable 40,674 81,349
Accrued payroll and other expenses 2,707,156 3,888,284
----------- -----------
Total current liabilities 13,334,891 15,088,800
Self-insurance reserves 393,921 563,815
Long-term debt due after one year 297,052 44,596
Obligations under capital leases due after one year 14,490 43,283
----------- -----------
14,040,354 15,740,494
----------- -----------
Stockholders' equity:
Preferred stock, Series A, $.0001 par value 2,033,682 2,033,682
Common stock, $.0001 par value 629 629
Additional paid-in capital 8,090,522 8,171,870
Retained earnings/(deficit) (5,127,140) (5,239,370)
----------- -----------
Total stockholders' equity 4,997,693 4,966,811
----------- -----------
Total liabilities and stockholders' equity $19,038,047 $20,707,305
=========== ===========
See accompanying notes to condensed financial statements.
3
COMMAND SECURITY CORPORATION
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Retained
Preferred Common Paid-In Earnings
Stock Stock Capital (Deficit)
---------- -------- ---------- -----------
Balance at March 31, 2002 $2,033,682 $ 629 $8,619,286 $(6,566,106)
Preferred stock dividends (366,068)
Net income - six months ended
September 30, 2002 3,306,344
---------- -------- ---------- -----------
Balance at September 30, 2002 2,033,682 629 8,253,218 (3,259,762)
Preferred stock dividends (81,348)
Net loss - six months ended
March 31, 2003 (1,979,608)
---------- -------- ---------- -----------
Balance at March 31, 2003 2,033,682 629 8,171,870 (5,239,370)
Preferred stock dividends (81,348)
Net income - six months ended
September 30, 2003 112,230
---------- -------- ---------- -----------
Balance at September 30, 2003 $2,033,682 $ 629 $8,090,522 $(5,127,140)
========== ======== ========== ===========
See accompanying notes to condensed financial statements.
4
COMMAND SECURITY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
------------------------------------
September 30, September 30,
2003 2002
----------- -----------
Cash flows from operating activities:
Net income $ 112,230 $ 3,306,344
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 262,611 333,724
Provision for doubtful accounts 62,064 1,181,716
Provision for audit contingencies 0 700,000
Gain on equipment dispositions (9,566) (10,405)
Deferred income taxes 0 903,899
Self-insurance reserves (80,147) 141,757
Decrease in receivables, prepaid
expenses and deposits 1,482,139 357,040
Decrease in accounts payable and
other current liabilities (461,071) (211,871)
----------- -----------
Net cash provided by operating activities 1,368,260 6,702,204
----------- -----------
Cash flows from investing activities:
Purchases of equipment (19,544) (112,896)
Proceeds from sale of equipment 12,364 19,544
Purchases of intangible assets (58,025) (35,000)
Principal collections on notes receivable 25,090 32,500
----------- -----------
Net cash used in investing activities (40,115) (95,852)
----------- -----------
Cash flows from financing activities:
Net repayments on line-of-credit (689,964) (4,490,415)
Decrease in cash overdraft (150,245) (569,555)
Principal payments on other borrowings (333,132) (1,184,806)
Principal payments on capital lease obligations (32,782) (76,856)
Payment of preferred stock dividends (122,022) (284,720)
----------- -----------
Net cash used in financing activities (1,328,145) (6,606,352)
----------- -----------
Net change in cash
and cash equivalent -0- -0-
Cash and cash equivalents
at beginning of period -0- -0-
----------- -----------
Cash and cash equivalents
at end of period $ -0- $ -0-
=========== ===========
See accompanying notes to condensed financial statements.
(Continued)
5
COMMAND SECURITY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental Disclosures of Cash Flow Information
Cash paid during the six months ended September 30 for:
2003 2002
--------- ---------
Interest $ 225,763 $ 372,322
Income taxes 171,754 50,000
Supplemental Schedule of Non-Cash Investing and Financing Activities
During the six months ended September 30, 2003, the Company reclassified
$1,930,379 of accounts receivable from current assets to other assets in
connection with the FAA disputed billings. This amount has been excluded from
the condensed statements of cash flows presented.
During the six months ended September 30, 2003, the Company agreed to a
settlement with the OGS in the amount of $600,000. This amount had been
accrued for during the year ended March 31, 2003 and included in other
payables. A portion of the agreement calls for 21 monthly payments totaling
$527,000, commencing December 1, 2003. This amount has been excluded from the
change in other payables and proceeds from long-term debt financing on the
condensed statements of cash flows presented.
For the six months ended September 30 2002, the Company purchased
transportation and office equipment with direct installment and lease
financing of $29,355.
The Company may obtain short-term financing to meet its insurance needs. For
the six months ended September 30, 2003 and 2002, $87,875 and $73,548,
respectively, were borrowed for this purpose. These borrowings have been
excluded from the condensed statements of cash flows.
For the six months ended September 30, 2003 and 2002, the Company accrued
dividends of $81,348 on its Series A convertible preferred stock. These
charges to paid-in capital and credits to dividends payable have been
excluded in the condensed statements of cash flows.
See accompanying notes to condensed financial statements.
6
COMMAND SECURITY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The unaudited financial statements presented herein have been prepared
in accordance with the instructions to Form 10-Q and do not include all of
the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
financial statements for the year ended March 31, 2003.
The financial statements for the interim periods shown in this report
are not necessarily indicative of results to be expected for the fiscal year.
In the opinion of management, the information contained herein reflects all
adjustments necessary to summarize fairly the results of operations,
financial position, stockholders' equity and cash flows at September 30,
2003, and for the period then ended. All such adjustments are of a normal
recurring nature.
1.) Short Term Notes Payable:
In November, 2000, the Company entered into a three year agreement with
LaSalle Business Credit, Inc. ("LaSalle") under a loan and security
agreement (the "agreement"), providing for a line of credit of up to 85%
of eligible accounts receivable, as defined in the agreement, but in no
event in excess of $15 million. The agreement was modified in January,
2002 and again in March, 2002 to provide for a $250,000 over-advance and
to expand the definition of eligible accounts receivable. At September
30, 2003, the Company had used $8,115,874 of this line, representing
approximately 89% of its maximum borrowing capacity. Interest is payable
at Prime plus 0.5% (4.5% at September 30, 2003). The line is
collateralized by customer accounts receivable and substantially all
other assets of the Company. The agreement with LaSalle expired on
November 1, 2003. A one month extension until December 1, 2003 was
granted by LaSalle to allow the Company time to complete financing with
a new financial institution and it is expected that a new agreement will
be in place prior to the end of November 2003.
2.) Net Income per Common Share:
Under the requirements of Financial Accounting Standards Board Statement
No. 128 (SFAS 128), "Earnings Per Share," the dilutive effect of
potential common shares, if any, is excluded from the calculation for
basic earnings per share. Diluted earnings per share are presented for
the three months and six months ended September 30, 2003 because of the
effect of the assumed issuance of common shares would have if the
outstanding stock options and warrants were exercised. The preferred
stock conversions were not included in the diluted earnings per share as
they were antidilutive.
3.) Preferred Stock
The Company has issued and outstanding 12,325 shares of Series A
Preferred Stock. The Series A shareholders are entitled to receive
annual dividends equal to 8% of the liquidation value of their shares,
payable quarterly. Upon liquidation or redemption the Series A
shareholders are entitled to $165 per share, or $2,033,682. The Company
had suspended payment of preferred dividends as of July 1, 2000, until
it could re-establish sufficient surplus in accordance with applicable
regulations. This was achieved and total arrears of $284,720 were paid
during the June 2002 quarter. As of September 30, 2003, the Company owed
its preferred stockholder $40,674, representing the dividend accrued for
the quarter ended September 30, 2003.
(Continued)
7
COMMAND SECURITY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
4.) Self-Insurance
The Company has an insurance policy to cover workers' compensation
claims in most states that the Company performs services. Annual
premiums are based on incurred losses as determined at the end of the
coverage period, subject to a minimum and maximum premium. Estimated
accrued liabilities are based on the Company's historical loss
experience and the ratio of claims paid to the Company's historical
payout profiles. Charges for estimated workers compensation related
losses incurred included in cost of sales were $1,530,370 and $1,509,787
for the six months ended September 30, 2003 and 2002, respectively.
The nature of the Company's business also subjects it to claims or
litigation alleging that it is liable for damages as a result of the
conduct of its employees or others. The Company insures against such
claims and suits through general liability policies with third-party
insurance companies. Such policies have limits of $5 million per
occurrence and $10 million in the aggregate (reduced to $5 million as of
October 1, 2002) on a per project basis. On the airport related
business, as of October 1, 2002 the Company acquired a policy with a $25
million limit per occurrence. Prior to December 1, 2001, the Company had
limits of $1 million per occurrence and $10 million in the aggregate.
Prior to October 1, 2001, the Company also had coverage under an excess
general liability insurance policy that covered claims for an additional
$50 million in the aggregate. The impact of the September 11 tragedy
meant that this umbrella coverage was no longer available to the Company
at an acceptable premium at the time of policy renewal (October 1,
2001). This coverage has become more affordable and the Company has an
excess general liability insurance policy that covers aviation claims
for an additional $25 million in the aggregate as of October 1, 2003.
The Company retains the risk for the first $25,000 per occurrence on the
non-aviation related policy and $10,000 on the aviation related policy
($50,000 for claims based on losses incurred prior to October 1, 2000).
Estimated accrued liabilities are based on specific reserves in
connection with existing claims as determined by third party risk
management consultants and actuarial factors and the timing of reported
claims. These are all factored into estimating losses incurred but not
yet reported to the Company.
Cumulative amounts estimated to be payable by the Company with respect
to pending and potential claims for all years in which the Company is
liable under its general liability risk retention and workers'
compensation policies have been accrued as liabilities. Such accrued
liabilities are necessarily based on estimates; thus, the Company's
ultimate liability may exceed or be less than the amounts accrued. The
methods of making such estimates and establishing the resultant accrued
liability are reviewed continually and any adjustments resulting
therefrom are reflected in current earnings.
5.) Contingent Liabilities:
The nature of the Company's business is such that there is a significant
volume of routine claims and lawsuits that are issued against it, the
vast majority of which do not lead to substantial damages being awarded.
The Company maintains general liability, casualty and worker's
compensation insurance coverage that it believes is appropriate to the
relevant level of risk and potential liability. Some of the claims
brought against the Company could result in significant payments;
however, the exposure to the Company under general liability is limited
to the first $50,000 for cases before October 1, 2000, and $25,000 per
occurrence on the non-aviation related claims and $10,000 on the
aviation related claims for cases after that date. Any punitive damage
award would not be covered by the general liability insurance policy.
The only other potential impact would be on future premiums, which may
be adversely effected by a poor claims history.
(Continued)
8
COMMAND SECURITY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
5.) Contingent Liabilities (continued):
In addition to such cases, the Company has been named as a defendant in
several uninsured employment related claims which are currently before
various courts, the EEOC or various state and local agencies. The
Company has instituted policies to minimize these occurrences and
monitor those that do occur. At this time the Company is unable to
determine the impact on the financial position and results of operation
that these claims may have, should the investigations conclude that they
are valid.
The Company was subject to an audit by the New York State Attorney
General's office relative to the provision of services to New York State
under the Office of General Services (OGS) requirements. A settlement
was reached with the Attorney General's Office calling for a penalty
provision in the amount of $73,000 to be paid over a three month period
and a note provision in the amount of $527,000 to be paid with
twenty-one monthly payments of approximately $27,000 including interest
at 9%, commencing December 1, 2003.
An audit of the Company's FAA contract for pre-board screening services
was completed during December 2002. Based on initial audit findings of
the Defense Contract Audit Agency (DCAA), the FAA had indicated that
approximately $5.2 million of billing was not supported by the Company's
accounting records and consequently the FAA held back $2.9 million of
payment on final invoices until the audit is resolved. The Company is
continuing negotiations with the Defense Contract Management Agency
(DCMA) over the disputed billings on the FAA contract for pre-board
screening services. Steps have been taken to ensure we achieve a fair
and equitable solution to our claim for costs incurred. This includes
retaining a firm of lawyers based in Washington to consider our options.
They have themselves retained a firm of accountants who have experience
in dealing with the DCMA to settle a dispute over the same issue with
another security company. During our discussions, we received written
correspondence from the DCMA indicating revised rates and a total
contract price of $30.3 million compared to original billings of $33.8
million, a difference of $3.5 million. We continue to negotiate with the
DCMA to prove additional costs we believe are not adequately reflected
in their latest offer. A formal submission was made on November 4, 2003,
outlining our claims for additional costs over and above those reflected
in the total contract price of $30.3 million. The total of the
additional costs claimed are over $3.1 million and will be the subject
of further negotiation. Our reserves remain unchanged on this issue at
$1.0 million, however the upper range has been increased by $0.2 million
to $2.4 million.
6.) Accounts receivable disputed
Accounts receivable disputed in the amount of $1,930,379 represents the
balance reported by the Company, net of a $1,000,000 provision, as due
from the FAA in connection with pre-board screening services rendered
under a contract completed during November 2002. The final contract
amount is currently the subject of negotiation with the Defense Contract
Management Agency (DCMA). Refer to note 5, Contingent Liabilities for
details regarding the status of the dispute.
9
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Management's Discussion and Analysis should be read in conjunction with
the Company's financial statements and the related notes thereto.
The following can be interpreted as including forward-looking statements
under the Private Securities Litigation Reform Act of 1995. The words
"outlook", "intend", "plans", "efforts", "anticipates", "believes", "expects"
or words of similar import typically identify such statements. Various
important factors that could cause actual results to differ materially from
those expressed in the forward-looking statements are identified at the end
of this Item 2. The actual results may vary significantly based on a number
of factors including, but not limited to, availability of labor, marketing
success, competitive conditions and the change in economic conditions of the
various markets the Company serves. Actual future results may differ
materially from any suggested in the following statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosure of contingent assets
and liabilities. We believe the following critical accounting policies affect
our more significant judgments and estimates used in the preparation of our
financial statements. Actual results may differ from these estimates under
different assumptions and conditions.
Revenue Recognition
The Company records revenue as services are provided to its customers.
Revenue consists primarily of security guard services which are typically
billed at hourly rates. These rates may vary depending on base, overtime and
holiday time worked. Costs associated with the Company's guard service
revenue consist of direct and indirect payroll and related expenses,
subcontractor costs, vehicle and other costs directly related to the guard
service revenue generated.
Reserve for Doubtful Accounts
The Company periodically evaluates the requirement for providing for
credit losses on its accounts receivables. Criteria used by management to
evaluate the adequacy of the allowance for doubtful accounts include, among
others, the creditworthiness of the customer, prior payment performance, the
age of the receivables and the Company's overall historical loss experience.
Individual accounts are charged off as management deems them as
uncollectible.
Prepaid Expenses
A significant new contract commenced in August 2003. Due to the size of
the costs relating to this contract (uniforms, radios, etc), $264,781 was
capitalized and is to be written off over its estimated useful life of 12
months. The expense reported amounted to $44,130 for the quarter ended
September 30, 2003.
Results of Operations
Revenue
Revenue decreased by $8,486,665 or 30.9% for the quarter ended September
30, 2003, to $18,983,436 from $27,470,101 in 2002. The major component of the
decrease in the current quarter was the federalization of pre-board screening
at US airports in November 2002. These services accounted for approximately
$10,673,000 of the September 2002 quarter end revenue. Underlying revenues
excluding these services therefore rose by $2,186,000 or 13.0%. The reason
for the increase was additional revenue from the Aviation division partly
offset by a reduction of $524,000 in the Guard division reflecting the
cancellation of certain contracts at lower margins than we required to make
an adequate return.
(Continued)
10
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
For the six months ended September 30, 2003, revenue decreased by
$20,183,992 or 36.2% to $35,557,261 from $55,741,253 for the six months ended
September 30, 2002. The reasons for the change were the same as those that
impacted the second quarter revenues. Pre-board screening revenues in the six
months ended 2002 were approximately $24,224,000. Underlying revenues
excluding these services increased by $4,040,000 or 12.8%. This increase was
due to additional revenues from other services provided by our Aviation
division to the airline industry including baggage handling, wheelchair
services and document verification. Underlying Aviation revenues rose by
$5,182,000 offset by reductions in the Guard division ($1,036,000) and the
closure of the National Accounts division ($109,000).
Gross Profit
It is not practical to ascertain the Gross Profit performance excluding
the FAA revenues for pre-board screening services as several direct costs
were shared between FAA and non-FAA continuing services in the Aviation
division. The published Gross Profit decreased by $3,699,784 to $3,003,986
(15.82% of revenue) for the quarter ended September 30, 2003, from $6,703,770
(24.40% of revenue) for the quarter ended September 30, 2002. Overall the
gross profit of 15.82% was in line with expectations expressed in the June
2003 10Q of around 16%. This in turn was slightly lower than previously
estimated due to recently won contracts in the Aviation division being at a
lower margin than the average for the division.
For the six months ended September 30, 2003, gross profit decreased by
$7,312,046 to $5,748,464 (16.17% of revenue) compared to $13,060,510 or
23.43% of revenue for the six months ended September 30, 2002. The reduction
in the margin for the six month period was for the same reason as that
outlined above for the quarter.
General and Administrative Expenses
General and administrative expenses were $2,604,722 (13.72% of revenue)
compared to $3,671,677 (13.37% of revenue) for the quarter ended September
30, 2002, a decrease of $1,066,955. The reduction primarily resulted from the
removal of costs associated with the increase in revenue in 2002. The cost in
the quarter ended September 2003 of 13.72% of revenue compares to 16.43% of
revenue for the previous quarter ended June 30, 2003. The margin improvement
in general and administrative expenses reflects cost reductions implemented
in June 2003 in the light of the losses incurred in the first quarter of
2003/04. These losses were the result of the negative impact of the Iraq war
and the SARS epidemic as well as a weak economy and a troubled airline
industry. The cost reductions coincided with an improvement in these factors
and combined with improved revenues, up 15% between the first and second
quarters of 2003/04.
For the six months ended September 30, 2003, general and administrative
expenses decreased by $1,632,682 to $5,327,588, compared to $6,959,270 for
the six months ended September 30, 2002. The major reasons for the reduction
were the reduced revenues following federalization and the impact in the
second quarter of the cost reductions implemented in June 2003.
Provision for Doubtful Accounts (Net)
The provisions for doubtful accounts decreased by $898,621 to a credit
of $9,948 for the quarter ended September 30, 2003, compared to a charge of
$888,673 in 2002. For the six months ended September 30, 2003, the provision
for doubtful accounts fell by $1,119,652 to $62,064 compared to $1,181,716
for the six months ended September 30, 2002. The credit of $9,948 reflects a
current provision for bad debt of $22,426 offset by an estimated recovery of
$33,374 on some of the older aviation debt balances that were reserved for
at the March 2003 year end. The cost for 2002 was unusually high due mainly
to aviation bankruptcies (including US Airways) and write-offs in balances on
the closed National Accounts division and closed guard branches, which were
not considered recoverable.
We periodically evaluate the requirement for providing for credit losses
on our accounts receivables. Criteria used by management to evaluate the
adequacy of the allowance for doubtful accounts include, among others, the
creditworthiness of the customer, prior payment performance, the age of the
receivables and the Company's overall historical loss experience. It is not
known if bad debts will increase in future periods nor do we believe that the
current period decrease is indicative of a trend.
11
(Continued)
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Interest Income
Interest income in the quarter ended September 30, 2003 of $18,708 was
$5,332 less than the previous year of $24,040. For the six months ended
September 30, 2003, interest income fell by $6,830 to $41,332 compared to
$48,162 the previous year.
Interest Expense
Interest expense decreased to $103,259 for the 2003 quarter from
$142,454 the previous year, a reduction of $39,195. For the six months ended
September 30, 2003, interest expense fell by $120,649 to $220,026 from
$340,675 for the six months ended September 30, 2002. The decrease primarily
arose from lower average borrowing on the line of credit with LaSalle and
from a lowering of the base rate of interest. The rate paid currently stands
at 4.50% compared to an average of approximately 5.25% in the same period
last year.
Equipment Dispositions
There were no disposals in the quarter ended September 30, 2003 compared
to a gain on equipment dispositions of $6,350 in the quarter ended September
30, 2002. Cumulatively, the gain of $9,566 in 2003 was $839 less than the
gain of $10,405 in 2002.
Liquidity and Capital Resources
We pay our guard employees and those of our administrative service
clients on a weekly basis, while our customers and the customers of
administrative service clients pay for the services of such employees
generally within 65 days after billing by the Company. In order to fund our
payroll and operations, we maintain a commercial revolving loan arrangement,
currently with LaSalle Business Credit, Inc. (LaSalle).
The LaSalle loan agreement provides for borrowings in an amount up to
85% of the Company's eligible accounts receivable, but in no event more than
$15,000,000. LaSalle also provided a term loan in the amount of $3,000,000.
This was repaid during the 2002/03 fiscal year. The revolving loan bears
interest at prime plus 0.5%. All loans are collateralized by a pledge of the
Company's accounts receivable and other assets. Although the loan agreement
expired on November 1, 2003, LaSalle has extended it until December 1, 2003
to allow time to close with a new lender. We are in the process of completing
this process with a new lender who has received internal committee
authorization to proceed to closing. The new agreement is planned to close
before the end of November 2003. The new financing arrangement is anticipated
to provide a borrowing facility based on eligible accounts receivable
comparable to the existing agreement with LaSalle. However, the interest rate
is expected to be 0.75% higher, which will have an estimated negative impact
on earnings and cash flows of approximately $65,000 per year based on current
borrowing requirements.
At September 30, 2003, we had borrowed $8,115,874 representing
approximately 89% of our maximum borrowing capacity based on the definition
of "eligible accounts receivable" under the terms of the loan and security
agreement.
The Company signed a note in connection with the OGS settlement in the
amount of $527,000. The note calls for twenty-one monthly payments in the
amount of $27,217 including interest at 9% per annum. The payments commence
December 1, 2003 and are expected to be financed with cash flows from
continuing operations.
We finance vehicle purchases typically over three years and insurance
through short-term borrowings. The Company has no additional lines of credit
other than discussed herein and has no present material commitments for
capital expenditures.
12
(Continued)
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Our operations for the six months ended September 30, 2003, resulted in
an operating profit of $358,812, a decrease of $4,560,712 compared to a
profit of $4,919,524 for the six months ended September 30, 2002. The
decrease is primarily due to the loss of pre-board screening business
following completion of federalization by the US government in November 2002,
partly offset by additional other aviation revenues and better cost control.
Working capital decreased by $1,534,978 to $2,055,847 as of September 30,
2003, from $3,590,825 as of March 31, 2003 primarily due to the disputed debt
from the FAA being reclassified as a long term asset. We experienced a cash
overdraft (defined as checks drawn in advance of future deposits) of $930,823
as of September 30, 2003, compared to $1,081,068 at March 31, 2003. Cash
balances and book overdrafts can fluctuate materially from day to day
depending on such factors as collections, timing of billing and payroll
dates, and are covered via advances from the revolving loan as checks are
presented for payment.
Outlook
This Section, Management's Discussion and Analysis of Results of
Operations and Financial Condition, contains a number of forward-looking
statements, all of which are based upon current expectations. Actual results
may differ materially and are qualified by the section below entitled
"Forward Looking Statements".
Our outlook on revenues is largely dependent upon our ability to win
additional revenue in the Guard and Aviation divisions at acceptable margins
while minimizing further contract terminations. The revenues of the Guard
division decreased over the past year as we eliminated contracts with
unacceptable margins and worked to increase both margin and net
profitability. The focus now is to increase revenue as branch manager's work
to sell new business while retaining good contracts. The airline industry
shows signs of improvement and demand for our services has held steady over
recent months. We unfortunately lost a wheelchair contract at the Thomas
Bradley terminal in LAX during September 2003 due to price pressures and the
government put a temporary hold on the transit without Visa's program in
August 2003. These factors have reduced our previous estimated annualized
revenues by about $3 million to just over $77 million.
We continue to invest approximately $200,000 per annum to support our
attempts to secure contracts from the Department of Homeland Security and
other government departments. We started the process of submitting bids in
the first quarter of 2003/04 and although we do not expect to win any
contracts in the short term, we are developing our contacts and experience.
We believe this to be an area of tremendous opportunity over the next few
years given the heightened focus on security in the US and the creation of
the Department for Homeland Security.
We expected margins post the federalization of pre-board screening
services to stabilize at between 16 and 17%, which proved to be the case in
the first quarter of the 2003/04 fiscal year. We expected some reduction over
the second quarter as recently won contracts in the Aviation division were at
a lower margin than the average for the division. The pressure on the airline
industry to reduce their cost base remains high and this might have an
adverse impact over the remainder of 2003/04. Overall, however, we continue
to expect margins for 2003/04 of approximately 16%.
A cost reduction program was completed in June 2003 in the light of
reduced revenues and the loss in the first quarter. We saw the benefit of
these reductions in our general and administrative expenses for the second
quarter of 2003/04. We expect our general and administrative expenses to
remain at a similar level of revenue as that achieved in the second quarter
at around 14%.
Overall, we expect to remain profitable from the second quarter of
2003/04 onwards as the benefit of increased revenues and reduced costs
combine to deliver a positive level of net income. This assumes that there is
no material change in the current level of revenue, nor any exceptional
charges. We are currently looking at additional sources of finance to
strengthen our balance sheet and to ensure we have the capacity to fund
further contract wins in the Guard or Aviation divisions as well as in the
new area of government contracts.
Reliance has decided to sell its investment in the Company. In November
2001, following the September 11 tragedy, the US government enacted
legislation to federalize pre-board screening services at US airports. As
part of the legislation, there was a restriction on companies with a
significant foreign ownership (defined as greater than 25%) from providing
services on many security contracts in the US. This would include those issued
by the Department of Homeland Security, as well as the US airports when they
have the right to opt out from federalization from November 2004. For this
reason, the Reliance Board concluded that it was in the best interests of
both Command and Reliance to dispose of its interest in Command.
13
(Continued)
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Reliance has therefore instructed advisors in the US to assist with the
sale in a private transaction. The Company is assisting with this process, as
well as looking at alternative sources of finance to allow it to complete the
disposal and fund future growth.
Reliance's interests consist of 1,632,339 shares of common stock, 12,325
shares of preferred stock and warrants covering 2,448,092 shares exercisable
at $1.25 per share. The Company and William C. Vassell, its President, CEO
and Chairman, entered into a Shareholder's Agreement dated September 12, 2000
with Reliance. This Shareholder Agreement makes provision for a seven person
board and grants Mr. Vassell and Reliance the ability to each designate three
nominees to the board plus one independent nominee to be jointly selected.
The Shareholder's Agreement also addresses the rights of Mr. Vassell and
Reliance in the event of his termination and contains a right of refusal in
the event of a sale of the securities covered by the agreement. The full text
of the Shareholder's Agreement is available as Exhibit 99.19 on the Company's
Form 8K filed September 27, 2000. A copy of this agreement will be provided
upon request directed to Graeme Halder, Chief Financial Officer at the
Company's headquarters, 845-454-3703. It may also be obtained on line at
www.sec.gov/edgar.shtml.
It is expected, but there is no assurance at this time, that any
purchaser of Reliance's interests in the Company will do so subject to the
terms of the Shareholder's Agreement. If Reliance is successful in selling
its interests in Command, management expects such sale will constitute a
change in control of the Company for Securities and Exchange Commission
reporting purposes and the Company would file a Form 8K which will contain
the details of any such transaction. The Company's Board of Directors,
subject to the advice and direction of the Board's Independent Committee of
Directors, will evaluate any sale of Reliance's interests. It is assumed that
any purchaser will seek approval from the Company's Board of Directors. At
this time, management does not expect that any such transaction will require
shareholder approval.
Forward Looking Statements
Certain of the statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations section of the Form
10Q and in particular those under the heading "Outlook," contain
forward-looking statements. These are based on current expectations,
estimates, forecasts and projections about the industry in which the Company
operates, management's beliefs, and assumptions made by management. In
addition, other written or oral statements that constitute forward-looking
statements may be made by or on behalf of the Company. While we believe these
statements are accurate, our business is dependent upon general economic
conditions and various conditions specific to our industry. Future trends and
these factors could cause actual results to differ materially from the
forward-looking statements that have been made. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, the actual outcomes and
results may differ materially from what is expressed or forecast in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
As provided for under the Private Securities Litigation Reform Act of
1995, the Company wishes to caution shareholders and investors that the
following important factors, among others, could cause the Company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the Company's forward-looking statements in
this report.
14
(Continued)
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Regulation
Management's evaluation of the Company's present status and future
prospects is dependent upon the assumption that the current regulation and
federalization of pre-board screening services previously provided by the
Company will not be expanded into other areas such as general security and
baggage handling at aviation facilities. Such increased regulation or
federalization would have a material adverse impact on the Company's
liquidity, results of operations and financial condition.
Competition
The Company's assumptions regarding projected results depend largely
upon the Company's ability to retain substantially all of the Company's
current clients. Retention is affected by several factors including but not
limited to, regulatory limitations, the quality of the services provided by
the Company, the quality and pricing of comparable services offered by
competitors, continuity of Management.
There are several major national competitors with resources far greater
than those of the Company which, therefore, have the ability to provide
service, cost and compensation incentives to clients and employees which
could result in a loss of such clients and/or employees.
Cost Management
The Company's ability to realize its projections will be largely
dependent upon its ability to maintain margins, which in turn will be
determined in large part by management's control over costs. To a significant
extent, certain costs are not within the control of management and profits
may be adversely affected by such items as litigation expenses, fees incurred
in connection with extraordinary business transactions, inflation, labor
unrest, increased payroll and related costs.
Collection of Accounts Receivable
Management has no reasonable basis to believe that default in payment of
accounts receivable by the Company's security guard customers or
administrative service clients will occur. The primary uncertainty that could
result in a default in payment of accounts receivable relates to the
financial condition of certain of our aviation industry customers (discussed
above in the paragraph titled "Provision for Doubtful Accounts" and Note 5 to
the Condensed Financial Statements). Any such default by a significant client
due to bankruptcy or otherwise, would have a material adverse impact on the
Company's liquidity, results of operations, and financial condition.
New Financing
If the new financing is delayed or does not close, the Company would try
to negotiate a further extension of the LaSalle facility. There can be no
assurance that such an extension would be obtained. However, given the
Company's continuing good faith efforts to obtain new financing, management
would expect to be able to obtain an extension for a short period of time.
The costs of any such extension, if any, cannot be estimated at this time. If
an extension were not obtained, the consequences on the Company would be
significant in that its source of working capital would be eliminated.
Operations would cease and the impact on the Company's results of operation
and financial condition would be materially adverse.
Catastrophic Events
The Company is exposed to potential claims for catastrophic events, such
as a hijacked airplane, based upon allegations that the Company failed to
perform its services in accordance with contractual or industry standards.
The Company's insurance coverage limits are currently $5 million per
occurrence and $10 million in the aggregate (reduced to $5 million effective
October 1, 2002 for non-aviation and increased to $25 million for aviation
related services) on a per project basis (now back to $50 million as of
October 1, 2003).
Additional detailed information concerning a number of factors that
could cause actual results to differ materially from the information
contained herein is readily available in the Company's most recent reports on
Forms 10-K, 10-Q and 8-K (all as filed with the Securities and Exchange
Commission from time to time).
15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk in connection with changes in
interest rates, primarily in connection with outstanding balances under its
revolving line of credit with LaSalle Business Credit, Inc. Based on the
Company's interest rate at September 30, 2003 and average outstanding
balances during the six months then ended, a 1% change in the prime lending
rate would impact the Company's financial position and results of operations
by approximately $21,250 over the next three months.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, within the 90-day
period prior to the filing date of this report, the Company carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed by the Company in the reports it files or submits
under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports it files or submits
under the Exchange Act is accumulated and communicated to the Company's
management, including the Company's Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
This evaluation was carried out under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation,
the Company's Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective. The
evaluation concluded further that during the quarter ended September 30,
2003, there were no changes in the Company's internal control over financial
reporting or in other factors that have, or are reasonably likely to,
materially affect said control.
16
PART II. Other Information
Item 1. Legal Proceedings
Reference is made to footnote 5 to the condensed financial
statements presented herein.
Item 6. Exhibits and Reports on Form 8-K
(1) Exhibits
Exhibit 99.1 Certification of William C. Vassell pursuant to 18
U.S.C Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
Exhibit 99.2 Certification of Graeme R. Halder pursuant to 18 U.S.C
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
Exhibit 99.3 Press Release dated November 14, 2003.
(2) 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.
COMMAND SECURITY CORPORATION
Date: November 14, 2003 By: /s/ William C. Vassell
---------------------------------------------
William C. Vassell, Chairman, President & CEO
By: /s/ Graeme R. Halder
---------------------------------------------
Graeme R. Halder, Chief Financial Officer
17
Exhibit 31.1
Certification (pursuant to Rule 13a-14 of the Securities Exchange Act of
1934, as amended)
I, William C. Vassell certifying individual, certify that:
1. I have reviewed the quarterly report on Form 10-Q of Command Security
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of the internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which could adversely
affect the registrant's ability to record, process, summarize and report
financial data; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the internal control over financial
reporting; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were material changes in internal
control over financial reporting or in other factors that could materially
affect said control subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2003
/s/ William C. Vassell
- ---------------------------
William C. Vassell
Principal Executive Officer
18
Exhibit 31.2
Certification (pursuant to Rule 13a-14 of the Securities Exchange Act of
1934, as amended)
I, Graeme Halder certifying individual, certify that:
1. I have reviewed the quarterly report on Form 10-Q of Command Security
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I am responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of the internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which could adversely
affect the registrant's ability to record, process, summarize and report
financial data; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the internal control over financial
reporting; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were material changes in internal
control over financial reporting or in other factors that could materially
affect said control subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2003
/s/ Graeme R. Halder
- ---------------------------
Graeme R. Halder
Principal Financial Officer
19
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Command Security
Corporation (the "Company") on Form 10-Q for the period ended September 30,
2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, William C. Vassell, Chairman of the Board of Directors,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U. S. C. section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13 (a) or 15
(d) of the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the
Company.
Date: November 14, 2003 By: /s/ William C. Vassell
--------------------------------------
William C. Vassell, President, CEO and
Chairman of the Board
20
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U. S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Command Security
Corporation (the "Company") on Form 10-Q for the period ended September 30,
2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Graeme Halder, Chief Financial Officer of the Company,
certify, pursuant to 18 U. S. C. section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13 (a) or 15
(d) of the Securities Exchange Act of 1934, and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the
Company.
Date: November 14, 2003 By: /s/ Graeme Halder
--------------------------------------
Graeme Halder, Chief Financial Officer
21
Exhibit 99.3
FOR IMMEDIATE RELEASE
CONTACT: William C. Vassell Donald Radcliffe
Chairman & President Radcliffe & Associates, Inc.
Tel: (845) 454-3703 Tel: (212) 605-0201
COMMAND SECURITY REPORTS
SECOND FISCAL QUARTER RESULTS
- Return to Profitability
- Revenues Increase 14.5% from Prior Quarter
- Reduced G&A Expenses
Lagrangeville, New York *** November 14, 2003 *** Command Security
Corporation (OTCBB: CMMD) announced today its results for the second fiscal
quarter ended September 30, 2003. The Company returned to profitability
during the quarter earning $206,533 or 0.03 per basic share.
Due to the federalization of the pre-board screening business in November
2002, revenues for the quarter decreased to $19.0 million from the $27.5
million recorded in the same period of the prior fiscal year. Excluding the
pre-board screening revenues lost to federalization, revenue would have
increased 13.0% from the September 2002 quarter. Revenues also increased by
more than $2.4 million or 14.5% from the revenue reported during the June
2003 quarter.
For the six month period, revenue decreased to $35.6 million from the $55.7
million recorded in the same period of the prior fiscal year. Revenue for the
six month period would have increased by $4.0 million or 12.8% excluding
pre-broad screening revenues reported in last year's revenue.
Gross profit for the quarter decreased to $3.0 million (15.82% of revenue)
from the $6.7 million (24.40% of revenue) recorded in the same period in the
prior fiscal year. For the six month period gross profit was $5.7 million
(16.17% of revenue) compared to $13.1 million (23.43% of revenue) in the same
period of the prior fiscal year.
General and Administrative Expenses as a percentage of revenue for the
quarter ended September 30, 2003 were 13.72% of revenue compared to 16.43% of
revenue recorded in the prior quarter ended June 30, 2003 reflecting cost
reductions which were implemented in June 2003.
Commenting on the results, Chairman and President William C. Vassell said.
"We are very pleased to have returned to profitability and expect to remain
profitable through the remainder of the year. Revenues from our Aviation
business continue to grow in the non- screening areas and this, combined with
cost reduction measures have returned us to profitability. We are actively
pursuing Homeland Security Contracts which are a major opportunity for the
Company."
22
COMMAND SECURITY CORPORATION
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenue $18,983,436 $27,470,101 $35,557,261 $55,741,253
Operating Profit 409,212 2,143,420 358,812 4,919,524
Net Income 247,207 1,156,623 112,230 3,306,344
Preferred stock dividends (40,674) (40,674) (81,348) (366,068)
----------- ----------- ----------- -----------
Net income applicable to
common stockholders $ 206,533 $ 1,115,949 $ 30,882 $ 2,940,276
=========== =========== =========== ===========
Net income per common share
Basic $ 0.03 $ 0.18 $ 0.01 $ 0.47
=========== =========== =========== ===========
Diluted $ 0.03 $ 0.14 $ 0.01 $ 0.37
=========== =========== =========== ===========
Weighted average number of
common shares outstanding
Basic 6,287,343 6,287,343 6,287,343 6,287,343
=========== =========== =========== ===========
Diluted 6,336,400 7,753,029 6,339,376 7,844,369
=========== =========== =========== ===========
About Command
Command Security Corporation provides security services through company-owned
offices in New York, New Jersey, California, Illinois, Connecticut, Florida,
Massachusetts, Pennsylvania, Maryland and Oregon.
Statements in this press release other than statements of historical fact are
"forward-looking statements." Such statements are subject to certain risks
and uncertainties including the demand for the Company's services,
litigation, labor market, and other risk factors identified from time to time
in the Company's filings with the Securities and Exchange Commission that
could cause actual results to differ materially from any forward looking
statements. These forward-looking statements represent the Company's judgment
as of the date of this release. The Company disclaims, however, any intent or
obligation to update these forward-looking statements. For more information
concerning the Company, please refer to its website at
www.commandsecurity.com and to the Edgar website www.sec.gov/edgar.shtml.
23