Command Security Corp. Reports Operating Results (10-Q)
Command Security Corporation provides uniformed security services from its eighteen operating offices in New York Massachusetts New Jersey Illinois California Pennsylvania Connecticut Florida and Georgia to commercial financial industrial aviation and governmental clients in the United States Canada and the UK. They provide its security services to a wide range of industries which are categorized into three groups - guard services aviation services and support services. Command Security Corp. has a market cap of $36.04 million; its shares were traded at around $3.49 with a P/E ratio of 14.5 and P/S ratio of 0.3. Highlight of Business Operations:Our revenues increased $2,535,145 and $9,492,572, or 8.4% and 10.7%, for the three and nine months ended December 31, 2008, respectively, compared with the corresponding periods of the prior year. The increases in revenues for the three and nine month periods ended December 31, 2008 were due mainly to: (i) expanded security services provided to new and existing customers, including a major medical center, a New York based hospital center, a major international commercial bank, a large grocery market distribution center in California and a company that provides merchandising and distribution services to a major grocery retailer in New Jersey, resulting in additional aggregate revenues of approximately $1,500,000 and $7,100,000, respectively; (ii) the acquisitions of security services businesses in Florida (September 2008) and Maryland (January 2008) that generated aggregate revenues of approximately $1,500,000 and $2,700,000, respectively; and (iii) expanded aviation services to new and existing customers at our terminal operations at Los Angeles International Airport in California and John F. Kennedy International Airport and LaGuardia Airport in New York, that generated additional aggregate revenues of approximately $600,000 and $3,400,000, respectively. The increases in revenues were partially offset by: (i) the loss of revenues at seven domestic airport locations resulting from a change in government regulations that requires the Transportation Security Administration (“TSA”) to provide certain document verification services that we formerly provided at these airports of approximately $600,000 and $2,500,000, respectively; and (ii) several of our airline customers continuing to reduce capacity within their systems which resulted in reductions of service hours that we provided to such carriers.
Our general and administrative expenses increased by $744,406 and $1,444,753, or 22.1% and 14.6%, for the three and nine months ended December 31, 2008, respectively, compared with the corresponding periods of the prior year. The increases in general and administrative expenses resulted primarily from higher: (i) administrative payroll and related costs of approximately $400,000 and $1,100,000, respectively, associated primarily with expanded operations, including the acquisitions in Florida and Maryland noted above, additional investment in our sales and marketing group and the addition of a Chief Executive Officer; (ii) professional and related fees and (iii) insurance related costs. The increase for the three months ended December 31, 2008 also reflects settlement of an employment related claim. The increase in our general and administrative expenses for the nine months ended December 31, 2008 was partially offset by reductions of approximately $175,000 resulting mainly from: (i) lower stock compensation costs; and (ii) the absence in the current year period of expenses associated with our initial listing of our common shares on the American Stock Exchange in the prior year.
On March 22, 2006, we entered into an Amended and Restated Financing Agreement with CIT (the “Amended and Restated Agreement”), which provided for borrowings as noted above, but in no event more than $12,000,000. The Amended and Restated Agreement provided for a letter of credit sub-line in an aggregate amount of up to $1,500,000. Under the Amended and Restated Agreement, letters of credit were subject to a two percent (2%) per annum fee on the face amount of each letter of credit. The Amended and Restated Agreement provided for interest to be calculated on the outstanding principal balance of the revolving loans at the prime rate (as defined in the Amended and Restated Agreement) plus .25%, if our EBITDA (as defined in the Amended and Restated Agreement) was equal to or less than $500,000 for the most recently completed fiscal quarter; otherwise, the outstanding principal balance bore interest at the prime rate. For LIBOR loans, interest was calculated on the outstanding principal balance of the LIBOR loans at the LIBOR rate (as defined in the Amended and Restated Agreement) plus 2.75%, if our EBITDA was equal to or less than $500,000 for the most recently completed fiscal quarter; otherwise, the outstanding principal balance bore interest at the LIBOR rate plus 2.50%.
On April 12, 2007, we entered into an amendment to the Amended and Restated Agreement (the “Amended Agreement”). Under the Amended Agreement, the aggregate amount that we could borrow from CIT under the credit facility was increased from $12,000,000 to $16,000,000, and CIT also provided us with a $2,400,000 acquisition advance to fund the cash requirements associated with the acquisition of a security services business. Further, the Amended Agreement extended the maturity date of this credit facility to December 12, 2008, reduced certain fees and availability reserves and increased the letter of credit sub-line to an aggregate amount of up to $3,000,000. Under the Amended Agreement, letters of credit are subject to a one and three-quarters percent (1.75%) per annum fee on the face amount of each letter of credit. The Amended Agreement provides that interest is calculated on the outstanding principal balance of the revolving loans at the prime rate (as defined in the Amended Agreement) less .25%. For LIBOR loans, interest is calculated on the outstanding principal balance of the LIBOR loans at the LIBOR rate (as defined in the Amended Agreement) plus 2.0%.
As of December 31, 2008, the interest rate for revolving loans was 6.75%. Closing costs for the Amended Agreement totaled $158,472, including $125,000 payable to CIT, with $45,000 due at closing, $40,000 due six months after closing and $40,000 due twelve months after closing. Legal costs incurred in connection with the transaction were $33,472. All of these costs are being amortized over the remaining life of the Amended Agreement.
Working capital increased by $767,826 to $6,864,862 as of December 31, 2008, from $6,097,036 as of March 31, 2008. We experienced checks issued in advance of deposits (defined as checks drawn in advance of future deposits) of $585,731 at December 31, 2008, compared with $1,962,314 at March 31, 2008. 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.
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