Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 0-28490
GUARDIAN INTERNATIONAL, INC.
(Formerly Everest Security Systems Corporation,
formerly Everest Funding Corporation,
formerly Burningham Enterprises, Inc.)
(Exact name of Registrant as specified in its charter)
State of Nevada 58-2201633
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Guardian International, Inc.
3880 N. 28 Terrace
33020 Hollywood, Florida
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954)926-1800
------------------------
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 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
The number of shares outstanding of the Registrant's Common Stock, par value
$.001 per share, at October 16, 1996, was 6,453,804 shares.
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PART I
Item 1. Financial Statements
GUARDIAN INTERNATIONAL, INC.
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996
[unaudited]
GUARDIAN INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
September 30, December 31,
1996 1995
(Unaudited)
CURRENT ASSETS:
Cash $ 1,175,129 $ 14,263
Accounts receivable, less allowance
for doubtful accounts of $68,147 and $15,000 553,052 146,285
Other current assets 146,274 7,943
-------------- ------------
Total current assets 1,874,455 168,491
------------- ------------
PROPERTY & EQUIPMENT:
Station equipment 521,401 287,055
Furniture and office equipment 44,636 31,859
Leasehold improvements 112,429 103,217
-------------- ------------
678,466 422,131
Accumulated depreciation and amortization (278,977) (212,184)
-------------- ------------
399,489 209,947
-------------- ------------
CUSTOMER ACCOUNTS, net 4,734,810 2,075,671
INTANGIBLE ASSETS, net 692,210 41,165
OTHER 18,043 138,492
-------------- ------------
Total Assets $ 7,719,007 $ 2,633,766
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expense $ 420,093 $ 185,067
Unearned revenue 123,705 60,880
Current portion of debt 45,241 44,947
------------- --------------
Total current liabilities 589,039 290,894
------------- -------------
DEFERRED INCOME TAX LIABILITY 63,000 -
LONG TERM DEBT:
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Equipment installment notes payable 144,044 61,970
Notes and loans payable to shareholders - 198,887
Note payable to financial institution 4,598,669 1,895,299
----------- -----------
Total long term debt 4,742,713 2,156,156
-----------
SHAREHOLDERS' EQUITY:
Common stock, 100,000,000 shares
authorized, $.001 par value,
6,453,808 shares issued
outstanding 6,454 3,227
Additional paid-in capital 3,611,398 1,060,903
Accumulated deficit (1,092,037) ( 877,414)
Stock subscriptions receivable (201,358) -
Treasury stock, at cost (202) -
----------- -----------
2,324,255 186,716
----------- -----------
Total Liabilities and Shareholders' Equity $ 7,719,007 $ 2,633,766
=========== ===========
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
REVENUES:
Monitoring $ 679,304 $269,980 $1,894,290 $ 659,307
Installation 203,391 7,858 382,246 121,589
Other 42,208 687 68,083 6,809
---------- ----------- -----------
924,903 278,525 2,344,619 787,705
--------- -------- ---------- -----------
OPERATING EXPENSES:
Monitoring - primarily salaries 92,441 50,214 270,552 154,058
Installation 125,362 14,604 182,185 127,667
General and administrative 449,963 158,808 1,093,319 459,921
--------- -----------
667,766 223,626 1,546,056 741,646
-------- -------- --------- -----------
Operating income before interest,
amortization and depreciation 257,137 54,899 798,563 46,059
INTEREST EXPENSE, AMORTIZATION
AND DEPRECIATION:
Interest expense 151,631 36,811 400,051 83,147
Amortization of customer contracts 184,889 36,555 438,998 84,978
Depreciation and amortization 30,114 23,693 111,137 71,079
--------- -----------
366,634 97,059 950,186 239,204
-------- --------- -------- -----------
Net loss before income taxes (109,497) (42,160) (151,623) (193,145)
PROVISION FOR INCOME TAXES
upon change in tax status 63.000 - 63,000 -
--------- ----------
Net loss $(172,497) $(42,160) $(214,623) $ (193,145)
========= ======== ========= ==========
Loss per share $ (.03) $ (.01) $ (.03) (.03)
=========== ======== ========== ==========
Weighted average number of common
shares outstanding 6,453,804 6,453,804 6,453,804 6,453,804
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
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GUARDIAN INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Common Stock Additional Accumulated
Shares Amount Paid in Capital Deficit
Balance,
December 31, 1995 3,226,902 3,227 1,060,903 $(877,414)
Issuance of stock
in connection with
Everest acquisition 3,226,902 3,227 4,218,333 -
Distribution to
Shareholder - - (1,667,838) -
Net loss for period - - 216,874 -
Balance, September _________ ______ ___________ ____________
30, 1996 6,453,804 $6,454 $3,611,398 $(1,092,037)
--------- ------ ---------- ------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
GUARDIAN INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996,
CONTINUED
Stock Treasury
Subscription Stock Total
Receivable
Balance,
December 31, 1995 $ - $- $186,716
Issuance of stock
in connection with
Everest acquisition (201,358) (202) 4,020,000
Distribution to
Shareholder - - (1,667,838)
Net loss for period - - 214,623
Balance, September _________ _________ ___________
30, 1996 (201,358) $(202) $2,324,255
See Notes to consolidated financial statements.
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GUARDIAN INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
CASH FLOW FROM OPERATING ACTIVITIES: 1996 1995
Net loss $ (214,623) $(193,145)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 111,137 71,079
Amortization of customer accounts 438,998 84,978
Provision for doubtful accounts 24,047 9,140
Changes in assets and liabilities:
Accounts receivable (233,778) (28,341)
Other Assets (16,637) 17,034
Accounts payable and accrued liabilities (6,319) (36,630)
Acquisition contracts payable (33,765) (53,058)
Unearned revenue 62,825 107,414
Deferred income tax liability 63,000 ---
------ ---
Net cash provided by (used in)
operating activities 194,885 (21,529)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (179,402) (25,226)
Acquisition of customer accounts (2,846,742) (896,109)
Advances from Everest 3, 115,619 ----
Cash acquired in acquisition 37,711 ----
--------- ----
Net cash provided by (used in)
investing activities 127,186 (921,335)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of long-term debt (1,274,129) (936,124)
Net proceeds from line of credit 3,979,649 1,958,652
Payment of shareholder loans (198,887) ----
Distribution to shareholder (1,667,838) ----
----------- ----
Net cash provided by
financing activities 838,795 1,022,528
------------ --------
Increase in cash 1,160,866 79,664
CASH, BEGINNING OF PERIOD 14,263 14,011
------------ --------
CASH, END OF PERIOD $1,175,129 93,675
NONCASH INVESTING AND FINANCING ACTIVITY:
Financed acquisition of property $ 58,250 14,362
------------ ----------
Fair value of Everest net assets acquired:
Subscriber accounts acquired $ 251,395 ----
Goodwill $ 579,509 ----
Other assets $ 131,385 ----
Purchase price of assumed liabilities $ (924,578) ----
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 345,957 356,776
---------- --------
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See Notes to consolidated financial statements. .
GUARDIAN INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BUSINESS COMBINATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments (consisting of
normal recurring accruals or adjustments only) necessary to present fairly
the financial position at September 30, 1996, and the results of operations
and the cash flows for the periods presented. The results of operations for
the interim periods are not necessarily indicative of the results to be
obtained for the entire year.
Business Combination
On August 28, 1996, Everest Security Systems Corporation ("Everest", or
"the predecessor company") acquired all of the outstanding common stock of
Guardian International, Inc. ("Guardian"), a non-public company, by issuing
3,226,902 shares of Everest. In addition, $1,750,000 was paid to the
principal shareholder of Guardian as consideration for consummating the
transaction (including repayments of shareholder loans of $82,162).
Guardian was merged into Everest, and the name of the surviving entity was
changed from Everest to Guardian (" the Company"). The transaction has been
accounted for under the purchase method as a reverse acquisition with
Guardian being deemed the acquirer.
In connection with the acquisition, the Company will issue 484,035
shares of non-voting class B common stock to a financial institution as
consideration for their consent to the merger and to amend certain
covenants of the loan agreement. These shares will be valued at $217,358.
The historical financial statements are those of Guardian. The results
of operations reflect the operations of Guardian prior to the merger, and
thereafter Guardian's consolidated results of operations with Specialty
Device Installers, Inc. ("SDI"), a wholly-owned subsidiary acquired from
the predecessor company. The balance sheet at December 31, 1995 is
Guardian's; the consolidated balance sheet at September 30, 1996 includes
the accounts of the surviving entity and its wholly-owned subsidiary. All
significant intercompany balances and transactions have been eliminated.
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Unaudited proforma information giving effect to the acquisition as if
it had occurred at the beginning of the periods reflected below is as
follows:
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ------ ----
Revenues, net $1,143,000 $ 584,000 $3,212,000 $1,703,000
Net loss before income
tax provision $ (200,000) $ (130,000) $ (478,000) $ (457,000)
Income tax provision $ (63,000) $ (22,000) $ (63,000) $ (22,000)
Net loss $ (263,000) $ (152,000) $ (541,000) $ (479,000)
Loss per share $ (.04) $ (.02) $ (.08) $ (.07)
Weighted average number
of shares outstanding 6,453,804 6,453,804 6,453,804 6,453,804
Description of Business
The Company operates a central monitoring alarm station and sells and
installs alarm systems for residential and commercial customers in Florida
.
Cash and Cash Equivalents
All highly liquid investments purchased with a remaining maturity of
three months or less at the date acquired are considered cash equivalents.
Customer Accounts and Intangible Assets
Customer accounts purchased from alarm dealers and intangible assets
are reflected at cost. Substantially all costs associated with purchasing
an alarm account are capitalized and included in the "customer accounts" in
the accompanying balance sheet. Costs related to marketing and installation
of systems for internally generated customer accounts are expensed as
incurred. Customer accounts are amortized on a straight-line basis over a
10 year period. It is the Company's policy to perform monthly evaluations
of acquired customer account attrition and, if necessary, adjust the
remaining useful lives. The Company periodically estimates future cash
flows from customer accounts. Because expected cash flows have exceeded the
unamortized cost of customer accounts the Company has not recorded an
impairment loss.
Intangible assets are recorded at cost and amortized over their
estimated useful lives. The carrying value of intangible assets is
periodically reviewed and impairments are recognized when expected
operating cash flows derived from such intangibles is less than their
carrying value.
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Property and Equipment
Property and equipment are stated at cost and are depreciated using
accelerated methods over their estimated useful lives.
Revenues
Revenues are recognized when installation of security alarm systems has
been performed and when monitoring services are provided. Customers are
billed for monitoring services on a monthly, quarterly or annual basis in
advance of the period in which such services are provided. Deferred
revenues result from billings in advance of performance of monitoring.
Costs of providing installations, including inventory, are charged to
income in the period when the installation occurs. Losses on contracts for
which future costs are anticipated to exceed revenues are recognized in the
period such losses are identified. Contracts for monitoring services are
generally for an initial non-cancelable term of five years with automatic
renewal on an annual basis thereafter unless terminated by either party. A
substantial number of contracts are on an automatic renewal basis.
Income taxes
Everest, the predecessor company, is a C Corporation subject to income
taxes at the corporate level. Prior to the merger, Guardian was an S
Corporation and subject to tax at the shareholder level. As a result of the
merger on August 28, 1996, Guardian's S Corporation status was terminated
and any future earnings will be subject to income taxes at the corporate
level.
As result of the change in tax status, the Company has established
deferred tax assets and liabilities for temporary differences between
financial statement and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables from
large number of customers, including both residential and commercial. The
Company extends credit to its customers in the normal course of business,
performs periodic credit evaluations and maintains allowances for potential
credit losses.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. PURCHASED CUSTOMER ACCOUNTS
The following is an analysis of the changes in acquired customer accounts
for the nine months ended September 30, 1996:
Balance, December 31, 1995 $ 2,075,671
Purchase of customer accounts 3,098,137
5,173,808
Amortization and write-off of customer
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accounts (438,998)
-----------
Balance, September 30, 1996 $4,734,810
==========
In conjunction with certain purchases of customer accounts, the Company
withholds a portion of the price as a credit to offset qualifying attrition of
the acquired customer accounts and for purchase price settlements of assets
acquired and liabilities assumed. At September 30, 1996, the amounts withheld in
connection with the acquisition of customer accounts aggregated $68,719, and are
included in accounts payable in the accompanying consolidated balance sheet.
3. INTANGIBLE ASSETS
Intangible assets consist of the following at September 30, 1996:
Estimated
Lives Amount
Excess of acquisition cost over
the net assets acquired 10 years $ 579,509
Covenant not to compete, organization costs
and other Various 193,455
772,964
Less accumulated amortization ( 80,754)
-----------
$ 692,210
4. NOTES PAYABLE TO FINANCIAL INSTITUTION
The Company has a $7 million line of credit with a financial institution
for the purpose of borrowing funds to acquire customer alarm accounts.
Borrowings under the agreement ($4,598,669 at September 30, 1996) bear interest
at 3% above prime. The loan is collateralized by the Company's assets and
matures on November 30, 1999. The principal shareholders of the Company have
personally guaranteed $700,000 of the loan and pledged their stock as
collateral. The agreement contains certain conditions including, but not limited
to, restrictions related to indebtedness, net worth and distribution payments to
shareholders other than $1,750,000 which was paid to a shareholder in connection
with the acquisition as described in Note 1.
5. RELATED PARTY TRANSACTIONS
Leased Facilities
The Company leases its monitoring facilities from an affiliate which is
owned by the principal shareholders of the Company at an annual rental of
approximately $51,000 (plus annual increases not to exceed 3%) through December
31, 1999 with an option to renew for an additional 5 years under the same terms.
6. INCOME TAXES
The conversion of Guardian from an S Corporation to C Corporation resulted
in recognition of a net deferred tax liability. The components of deferred tax
assets and liabilities at September 30, 1996 are as follows:
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Deferred Tax Assets -
Net operating loss carryforwards $ 48,500
Allowance for doubtful accounts 22,500
Total deferred tax assets 71,000
Deferred Tax Liabilities -
Difference in amortization of customer
contracts 120,200
Other 13,800
--------
Total deferred tax liabilities 134,000
-------
Net deferred tax liability $63,000
At September 30, 1996, the Company has net operating loss carryfowards for
federal income tax purposes of approximately $143,000 which expire in 2010.
These net operating loss carryforwards will be subject to significant annual
limitations on utilization in future years as a result of the merger and related
change in ownership control of the company.
8. PRO FORMA DATA
Pro Forma Income Tax Provision (Credit) -
Pro forma net losses do not include a pro forma income tax provision or
benefit for periods prior to the acquisition, as the Company has had net losses
since its inception. The income tax provision in the pro forma data represents
the estimated deferred income tax liability had the Company terminated its S
Corporation status at the end of the period presented.
Pro Forma Net Loss Per Share -
Pro forma net loss per share is computed by dividing the pro forma net
loss by the pro forma number of shares of common stock outstanding during the
periods.
Pro Forma Shares Outstanding -
Pro forma shares outstanding represent the number of shares of common
stock outstanding after giving retroactive effect to the 3,226,902 shares issued
in connection with the merger. Accordingly the calculation of the pro forma
weighted average number of shares of common stock outstanding would be 6,453,804
shares for the nine months ended September 30, 1996 and 1995, respectively.
9. STOCKHOLDERS' EQUITY
(a) Common Stock
The Company has authorized the issuance of up to 100,000,000 shares of
common stock with a par value of $.001. At September 30, 1996, there were
6,453,804 shares of common stock issued and outstanding. Treasury stock is shown
at cost, and as of September 30, 1996, consisted of 10,078 shares.
(b) Stock Subscription Notes Receivable
In December 1995, the Company issued 285,000 shares of common stock at $2
per share ($570,000 in the aggregate). The proceeds from the sale of the common
stock were evidenced by an 8% stock subscription note receivable due in January
1996 and collateralized by the common stock. As of September 30, 1996, there
remains an outstanding balance of $201,358 ($179,760 of principal and $21,598 of
interest) under the notes receivable. The $201,358 has been reflected as "stock
subscriptions receivable" and a reduction of stockholder's equity in the
accompanying consolidated balance sheet. Management is in the process of
attempting to collect the outstanding amounts or have the applicable common
shares returned.
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10. STOCK OPTION PLAN
The Company has issued stock options to various key employees to purchase
100,000 and 10,000 shares of common stock at $2 and $3 per share, respectively.
The Company also issued options to purchase 74,720 shares at $2 per share to an
investment banker. All options expire on December 31, 2000. As of September 30,
1996, none of these options had been exercised.
In October, 1995, the Financial Accounting Standards Board issued SFAS No.
123. "Accounting for Stock Based Compensation", which establishes financial
accounting and reporting standards for stock-based employee compensation plans
and for the issuance of equity instruments to acquire goods and services from
nonemployees. The Company plans to adopt SFAS No. 123 for its stock-based
employee compensation plans in fiscal 1997 through pro forma disclosure only.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Forward Looking Information
The Private Securities Litigation Reform Act of 1995 (the
"Reform Act") provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about their companies, so
long as those statements are identified as forward-looking and are accompanied
by meaningful cautionary statements identifying important factors that would
cause actual results to differ materially from those discussed in the statement.
The Company desires to take advantage of the "safe harbor" provisions of the
Reform Act. Except for the historical information contained herein, the matters
discussed in this Form 10QSB quarterly report are forward-looking statements
which involve risks and uncertainties. Although the Company believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Important factors that could cause actual results to differ materially
from the Company's expectations are disclosed in conjunction with the forward
looking statements or elsewhere herein.
Overview
The services offered by the Guardian Companies (Guardian
Monitoring, Gibraltar Security, and Specialty Device Installers) include the
design, sales/lease, installation and maintenance of security and fire systems,
and the ongoing monitoring and service of these systems. Over seventy five
percent (75%) of all the systems the company services generate some sort of
Monthly Recurring Revenue ("MRR").
A majority of the Company's revenues are derived from
recurring payments for the monitoring and maintenance of security systems. The
Company also generates revenue from billable service charges and revenues from
the sale and installation of security systems, add on
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and upgrades. The installation work is done mostly through the Company's wholly
owned subsidiary Specialty Device Installers, Inc. ("SDI"). Revenue is provided
from monitoring contracts with initial terms ranging from one to five years.
Payment for monitoring services is typically required in advance, and monitoring
revenue is recognized as the service is provided. Installation, add on and
upgrade revenue is recognized when the required work is completed. All direct
installation costs, which include materials, labor and installation overhead,
and selling and marketing costs are expensed in the period incurred.
The heart of Guardian's operation is its state of the art
Central Monitoring Station. The monitoring facility is one of the most advanced
and well equipped facilities of its kind in the United States. The Company has
recently upgraded the system software which has made the facility even faster
and more efficient. The Guardian monitoring station currently monitors 24,500
subscribers, and with a minimal capital expenditure can be expanded to monitor
up to 200,000 subscribers. This well designed and efficient monitoring facility
is the foundation for future growth of MRR. With the efficiency of the Central
Monitoring Station, alarm monitoring services generate a significantly higher
gross margin than do the other services provided by the Company. While sales and
installation services contribute to the Company's gross profits, the total
expenses associated with alarm system installations (including not only the
direct costs of providing such services but also the expenses associated with
sales and marketing of alarm systems) also exceed the revenues generated by such
services. The Company's strategy, however, is to invest in system sales and
installation because the Company believes that such services and products
contribute to the generation and retention of alarm monitoring subscribers.
Plan of Operation
The Company's strategy for growth has been through the
acquisition of other security companies and security monitoring contracts, and
internal growth with aggressive marketing and superior customer service. The
security industry is experiencing dramatic growth and increased consolidation
among smaller, fragmented "mom and pop" type companies. Guardian's strategy is
to identify these consolidation opportunities and creating efficient economies
of scale through technical and managerial efficiency. From 1994 to 1996, the
Company made twelve security alarm business account portfolio acquisitions
including All American Security and Gibraltar Alarm Systems. The Company has
successfully incorporated these businesses and molded these accounts into its
operation and created economies of scale and improved margins. Guardian's
strategy of growth has increased the Company's current and future MRR.
The Company can continue to purchase additional accounts
through internally generated cash flow. However, to implement its growth
strategy the Company is currently undertaking expansion of its credit facilities
as well as contemplating equity funding.
During the first quarter of 1996 Guardian completed hardware
and software
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upgrades to its security monitoring system. These improvements included the
addition of increased memory on the Data General/Avion machines, enhancements to
the Company system in a more client/server aspect (as opposed to text
terminals), and additional automation enhancements that will increase efficiency
while reducing cost. Guardian is currently operating under the MAS 5.50.11
version for its automation, service, and billing system.
Results of Operations
Subscriber Attrition. Subscriber attrition has a direct impact
on the Company's results of operations, since it affects both the Company's
revenues and its amortization expense. Attrition can be measured in terms of
decreased MRR resulting from canceled subscriber accounts net of sales of
certain services to existing subscribers, and can also be measured in terms of
canceled subscriber accounts. Guardian has developed an in-house system for
identifying and decreasing account attrition. The Program has been dubbed the
"No-Tolerance Attrition Policy."
Guardian has developed specific procedures for identifying possible account
attrition at various stages and preventing lost accounts or replacing lost
accounts in a fast manner. This program is a critical part of Guardian's
business strategy to increase and maintain MRR.
The No-Tolerance Attrition Policy includes the following:
a) Identification of possible lost accounts via daily test.
b) False alarm fines tracking and cause identification
c) Early, account delinquent procedures
d) Superb Customer Service
e) Control Lockout
f) Early identification of new tenants/residences in Guardian
alarmed homes
Year Gross Net Attrition Non-Tolerance
Attrition (after saves) Program Results*
1993 7.2% 6.7% .05%
1994 7.9% 7.2% .07%
1995 10.1% 7.5% 2.6%
* This is the difference as a result of Guardian's
NO-Tolerance Attrition Program
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<TABLE>
<CAPTION>
The following table sets forth, for the Periods indicated, the percentage of net
sales of certain items in the Company's consolidated statements of operations
and other data, and the percentage change in each item from the prior period.
<S> <C> <C> <C> <C> <C>
Percentage of Percentage of Nine Months Percentage of Three Months
To Total Revenues Ended Sept 30, Total Revenues Ended Sept 30,
Total Revenues Nine Months 1996 as Three Months 1996
Nine Months Ended Sept. compared to Ended Sept. Compared to
Ended Sept. 30, 1995 Nine Months 30, 1996 three Months
30, 1996 Ended Sept. Ended Sept.
30, 1995 30, 1995
Revenues:
Monitoring 80.8% 83.7% 187% 73.4% 152%
Installation 16.3% 15.4% 214% 22.0% 2488%
Other 2.9% 0.9% 900% 4.6% 6035%
Total Revenues 100% 100% 198% 100% 232%
Cost of Revenue
Monitoring 11.5% 19.6% 76% 9.9% 84%
Installation 7.8% 16.2% 43% 13.6% 758%
S.G&A 46.6% 58.4% 138% 48.6% 183%
Total Cost of 65.9% 94.2% 108% 72.1% 199%
Revenues
Gross Profit 34.1% 5.8% 1634% 27.9% 368%
Interest Expense 17.1% 10.6% 381% 16.4% 312%
Amortization of 18.7% 10.8% 417% 20.0% 406%
contracts
Depreciation & 4.7% 9.0% 56% 3.3% 27%
Amortization
Profit (Loss) (6.5%) (24.6%) 21% (11.8%) (160%)
before Income
Tax
Provisions for (2.7%) - - ( 6.8%) -
Taxes
Net Profit (Loss) (9.2%) (24.6%) (11%) (18.6%) (309%)
- ---------------- --------- ---------- ---------- --------- ----------
</TABLE>
Nine Months Ended September 30, 1996 Compared to
Nine Months Ended September 39, 1995
Revenues. Revenues for the nine months ended September 30, 1996 increased by
$1,556,914, or 198%, to $2,344,619 from $787,705 for the comparable period in
1995. Monitoring revenues increased by $1,234,983, or 187%, primarily because of
a net increase in the number of subscribers to the Company's alarm services
resulting from acquisitions. Installation revenues increase by $260,657, or 214%
mainly because of the acquisition of Specialty Device Installers, Inc.
Cost of Revenues. Cost of revenues for the nine months ended September 30, 1996
increased by $633,399, or 137%, compared to the comparable period in 1995, and
decreased as a percentage
15
<PAGE>
of revenues from 58.4% to 46.6%. Monitoring expenses include telephone, labor,
rent and depreciation expenses associated with monitoring of subscriber
accounts, as well as billing and collection expenses. Monitoring expenses
increased by $116,494 or 76%, primarily because of addition of new employees to
handle the additional monitoring acquired through acquisitions. Installation
expenses increased by $54,518, or 43%, primarily as a result of the additional
installation revenue generated by the acquisition of Specialty Device Installers
during the nine months ending September 30, 1996.
Gross Profit. Gross profit for the nine months ended September 30, 1996
increased by $752,504, or 1,634% to $798,563 from $46,059 in the comparable
period in 1995. Gross profit as a percentage of revenues increased to 34.1% from
5.8%. The increase in gross profit percentage is primarily a result of large
increase in revenue without the corresponding increase in operating cost
associated with economies of scale. The primary component of the increase in
gross profit was an increase of gross monitoring profit from the comparable
period in 1995. Monitoring gross profit was greater than in the comparable
period in 1995, principally as a result of increased efficiencies associated
with a larger subscriber account base.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1996 increased
by $633,399, or 138%. As a percentage of total revenues, general and
administrative expenses decreased to 46.6% from 58.4%. The Company expects that
the aggregate amount of general and administrative expenses will increase in the
future as the Company's subscriber base continues to grow but will decrease as a
percentage of total revenue.
Amortization of Subscriber Accounts and Goodwill. Amortization expense for the
nine months ended September 30, 1996 increased by $354,020, or 417%, above the
comparable period in 1995, as a result of the acquisition of Specialty Device
Installers and by the acquisition of additional subscriber accounts.
Interest Expense. Interest expense, including amortization of debt issuance
costs, increased approximately $316,904, or 381%, for the nine months ended
September 30, 1996, compared to same period 1995. The expense increase primarily
as a result of higher outstanding principal balances during fiscal 1996 created
by the increase in acquisitions done by the Company.
Operating Loss After Tax. Operating loss after tax for the nine months ended
September 30, 1996 was $(214,623), compared to an operating loss of $(193,145)
in the comparable period in 1995.
Liquidity and Capital Resources
General. The Company has financed its operations and acquisitions from
a combination of borrowing, sales of stock and internally generated funds. The
Company's principal uses of cash are acquisitions of subscriber accounts,
interest and principal payments on long-term debt and
16
<PAGE>
capital expenditures. Future acquisitions of subscriber accounts will likely
require additional financing.
For the nine months ended September 30, 1996, the Company's net cash provided by
operating activities was $194,885, compared to $(21,529) net cash used in
operating activities for the comparable period in 1995.
For the nine months ended September 30, 1996, the Company's net cash provided by
investing activities was $127,186, compared to $(921,335) net cash used in
investing activities during the same period in 1995, primarily as a result of
the funds advanced by Everest Security Systems Corporation in the form of equity
investment.
For the nine months ended September 30, 1996, the Company's net cash provided by
financing activities was $838,795, compared to $1,022,528 in the comparable
period in 1995. Financing activities were primarily associated with the
retirement of long-term debt in fiscal 1996, and repayment of shareholder's
loans.
Heller Financial. Revolving Credit Facility. On November 16, 1994 ,
the Company entered into an agreement with Heller Financial, Inc. ("Heller')
that established the Revolving Credit Facility. The Revolving Credit Facility
matures in November 30, 1999, subject to earlier termination. The Company had
$4,598,669 million and $1,028,634 million outstanding at September 30, 1996 and
September 30, 1995, respectively, under the credit facility.
Availability under the Revolving Credit Facility is a function of a series of
factors including, the amount of unbilled revenue of Guardian's account
portfolio and the multiple of Monthly Recurring Income for which Guardian is
borrowing. At September 30, 1996, and September 30, 1995, the most restrictive
of these availability tests resulted in total remaining availability of
approximately $2,401,331 million and $5,971,366 million, respectively.
Under the Revolving Credit Facility, the applicable interest rate is the prime
interest rate plus 3%. The Company has paid Heller a initial funding fee of
$25,000 for the initial $2,500,000 of borrowing, and continues to pay Heller a
transaction fee of 1% of the amount it is borrowing at the time of funding. As a
result of exchanging the Capital Appreciation rights of Heller for Common Class
B shares, the Company is no longer responsible for any additional Capital
Appreciation Rights .
The Revolving Credit Facility contains customary covenants including, among
others, restrictions on the incurrence of debt, encumbrances on or sates of
assets, mergers and acquisitions, dividends and transactions with affiliates.
Financial covenants include the maintenance of (i) a minimum EBITDA; (ii) a
minimum ratio of EBITDA less capital expenditures to senior interest; (iii) a
minimum ratio of EBITDA less capital expenditures to fixed charges; (iv) a
maximum annual rate of MRR attrition; and (v) maximum annual capital
expenditures. The Revolving Credit Facility provides that a "change of control"
(as defined
17
<PAGE>
therein) constitutes an event of default.
The Revolving Credit Facility contain certain restrictions on transfers of funds
such as loans and advances to the Company from its subsidiaries, but not on cash
dividends to the Company by its subsidiaries. The Company believes that such
restrictions have not had and will not have a significant impact on the
Company's ability to meet its cash obligations.
Capital Expenditures. The Company anticipates making additional capital
expenditures in the remainder of fiscal 1996 of approximately $10,000 to upgrade
its telecommunications capabilities and for routine replacement and upgrading of
other capital items. In addition, the Company anticipates making additional
capital expenditures of approximately $5,000 for facility improvements in the
remainder of fiscal 1996. The Company has no other material commitments for
capital expenditures. the Company does not foresee the need for any significant
investment in new technology in the near future and believes that no new
technology expenditures are currently required in order to sustain market share.
PART II
Item 1. Legal Proceedings.
Neither the Registrant nor its subsidiaries were subject to any legal
proceedings during the reporting period.
Item 2. Change in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On, November 14, 1996 the Registrant filed an Information
Statement with the Securities and Exchange Commission whereby notice was given
that Richard Ginsburg, Harold Ginsburg, Sheilah Ginsburg and Rhonda Ginsburg
(the "Ginsburgs"), as holders and/or controllers of approximately 62% of the
issued and outstanding Common Stock (4,065,557 shares), par value $0.001 per
share (the "Common Stock"), of Guardian International, Inc. (the "Company"),
shall, on or about December 5, 1996, approve and adopt the following proposals
(the "Proposals") by written consent in lieu of a meeting:
18
<PAGE>
1. An amendment to the Company's Certificate of
Incorporation to change the name
of the Company to Guardian International, Inc.
2. An amendment to the Company's Amended Certificate of
Incorporation to (a) authorize two new classes of common stock
of the Company designated as Class A Voting Common Stock
("Class A Common Stock") and Class B Nonvoting Common Stock
("Class B Common Stock") and (b) establish the relative
rights, powers and limitations of the Class A and Class B
Common Stock.
The Proposals were approved and adopted by the Board of
Directors of the Company. The record date for the determination of stockholders
of the Company entitled to receive this Notice of Action by Written Consent and
the Accompanying Information Statement and the determination of the number of
shares of common stock necessary to approve the Proposals has been fixed as of
the close of business on September 10, 1996 (the "Record Date").
As provided in the Company's Certificate of Incorporation,
each share of common stock entitles its holder to one vote on any matter that
properly comes before the stockholders of the Company and requires a vote of the
stockholders. The affirmative vote or written consent of the holders of a
majority of the outstanding shares of common stock is necessary to approve the
Proposals. The Ginsburgs collectively own and/or control approximately 62% of
the issued and outstanding common stock as of the Record Date. The Ginsburgs
delivered a written consent approving and adopting the Proposals. No other class
of voting security of the Company is issued or outstanding. Pursuant to Section
78.320 of the Nevada General Corporation Law, the shareholders of Registrant
were provided with notice of the approval of the Proposals by written consent of
the holders of a majority of the Company's common stock. Pursuant to the
Securities Exchange Act of 1934, as amended, along with the Notice, the
shareholders were furnished with an Information Statement relating to the
Proposals.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits.
19. Information Statement/Notice of Action by Written Consent
(B) Reports on Form 8-K.
Reports on Form 8-K were filed September 12, 1996 and November 13, 1996.
The following items were reported:
19
<PAGE>
Changes in Control of Registrant
On August 28, 1996, in connection with a merger of Guardian
International, Inc. ("Guardian") with and into Everest Security Systems
Corporation (the" Registrant"), three million two hundred twenty six thousand
nine hundred two (3,226,902) shares of common stock, par value $0.001, were
issued to the former shareholders of Guardian pursuant to Regulation D and
Section 4(2) of the Securities Act of 1933, as amended. Prior to the merger, the
Registrant had three million two hundred twenty six thousand nine hundred two
(3,226,902) shares of common stock outstanding and upon completion of the merger
has six million four hundred fifty three thousand eight hundred four (6,453,804)
shares of common stock outstanding.
On August 28, 1996, resignations were tendered by the
directors and officers of Everest to Guardian and designees of Guardian were
elected to the Board of Directors and as Officers of the Registrant in
accordance with the terms and conditions of the Merger Agreement.
Acquisition or Disposition of Assets
On August 28, 1996, the Registrant entered into a Plan and
Agreement of Merger with Guardian International, Inc. ("Guardian"), a
corporation organized and existing under the laws of the State of Florida
whereby the Registrant would be the Surviving Corporation.
Changes in Registrant's Certifying Accountant
On August 28, 1996 Semple & Cooper, P.L.C. was dismissed as
independent auditors. The Board of Directors has approved McKean, Paul, Chryey,
Floetcher & Co. as independent auditors for the year ended December 31, 1996 at
the Board of Directors meeting on August 29, 1996.
Financial Statements Filed Pursuant to Form 8-K:
Audited financial statements for the year ended December 31,
1994, and the years ended December 31, 1995 and 1994 and unaudited proforma
financial statements for the eight month period ended August 31, 1996 were
filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
20
<PAGE>
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Dated this _____ day of November, 1996.
GUARDIAN INTERNATIONAL, INC.
(the "Registrant")
By:__(signature of Richard Ginsburg appears here)_________
RICHARD GINSBURG, PRESIDENT
21
<PAGE>
EXHIBIT (19)
Reports Furnished to Security Holders
INFORMATION STATEMENT
GUARDIAN INTERNATIONAL, INC.
3880 North 28th Terrace
Hollywood, Florida 33020-1118
- -------------------------------------------------------------------------------
NOTICE OF ACTION BY WRITTEN CONSENT
- -------------------------------------------------------------------------------
To the Stockholders of Guardian International, Inc.:
Notice is hereby given that Richard Ginsburg, Harold Ginsburg,
Sheilah Ginsburg and Rhonda Ginsburg (the "Ginsburgs"), as holders and/or
controllers of approximately 62% of the issued and outstanding Common Stock, par
value $0.001 per share (the "Common Stock"), of Guardian International, Inc.
(the "Company"), shall, on or about December 5, 1996, approve and adopt the
following proposals (the "Proposals") by written consent in lieu of a meeting:
1. An amendment to the Company's Certificate of Incorporation to
change the name of the Company to Guardian International, Inc.
2. An amendment to the Company's Amended Certificate of
Incorporation to (a) authorize two new classes of common stock
of the Company designated as Class A Voting Common Stock
("Class A Common Stock") and Class B Nonvoting Common Stock
("Class B Common Stock") and (b) establish the relative
rights, powers and limitations of the Class A and Class B
Common Stock.
The Proposals have been approved and adopted by the Board of
Directors of the Company. The record date for the determination of stockholders
of the Company entitled to receive this Notice of Action by Written Consent and
the Accompanying Information Statement and the determination of the number of
shares of common stock necessary to approve the Proposals has been fixed as of
the close of business on September 10, 1996 (the "Record Date").
As provided in the Company's Certificate of Incorporation,
each share of common stock entitles its holder to one vote on any matter that
properly comes before the stockholders of the Company and requires a vote of the
stockholders. The affirmative vote or written consent of the holders of a
majority of the outstanding shares of common stock is necessary to approve the
Proposals. As discussed herein, the Ginsburgs collectively own and/or control
approximately 62% of the issued and outstanding common stock as of the Record
Date. The Ginsburgs will deliver a written consent that will approve and adopt
the Proposals. No other class of voting security of the Company is issued or
outstanding. Pursuant to Section 78.320 of the Nevada General Corporation Law,
you are being provided with notice of the approval of the Proposals by written
consent of the holders of a majority of the Company's common stock. Pursuant to
the Securities Exchange Act of 1934, as amended, along with this Notice, you are
being furnished with an Information Statement relating to the Proposals.
<PAGE>
NO STOCKHOLDERS' MEETING WILL BE HELD TO VOTE ON OR DISCUSS THE
PROPOSALS. ACCORDINGLY, WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUIRED NOT TO SEND US A PROXY.
By Order of the Board of
Directors,
November 14, 1996 (signature og Sheilah Ginsburg appears here)
Sheilah Ginsburg, Secretary
<PAGE>
GUARDIAN INTERNATIONAL, INC.
3880 NORTH 28TH TERRACE
HOLLYWOOD, FLORIDA 33020-1118
----------------------------------------------------------------
INFORMATION STATEMENT
----------------------------------------------------------------
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
GENERAL
This Information Statement is being furnished by the Board of
Directors of Guardian International, Inc., a Nevada corporation, (the
"Company"), to holders of all the issued and outstanding shares of the Company's
common stock for the purpose of describing action to be taken by the holders of
a majority of the issued and outstanding shares of the Company's common stock in
connection with the Proposals set forth on the accompanying Notice of Action of
Written Consent.
This Information Statement and the Notice of Action by Written
Consent are first being mailed to stockholders of the Company on approximately
November 15, 1996.
Only stockholders of record at the close of business on
September 10, 1996 (the "Record Date"), are entitled to receive this Information
Statement and Notice of Action by Written Consent. As of the close of business
on such date, there were issued and outstanding 6, 453,804 shares of common
stock of the Company of which an aggregate of approximately 62% are owned and/or
controlled by Harold Ginsburg, Richard Ginsburg, Sheilah Ginsburg and Rhonda
Ginsburg (the "Ginsburgs"). No other class of voting security of the Company is
issued and outstanding.
The Company's Certificate of Incorporation and the Nevada
General Corporation Law each require an affirmative vote or written consent of
the majority of the outstanding shares to approve the Proposals. Because the
Ginsburgs own and/or control approximately 62% of the issued and outstanding
shares on the Record Date, they have the voting power to approve the Proposals.
The Ginsburgs have indicated that they intend to give their written consent to
the adoption of the Proposals. Accordingly, the Ginsburgs will be able to cause
the adoption of the Proposals without the receipt of consents from the remaining
stockholders of the Company. The Company anticipates that the filing of such
written consents will occur on or about November 8, 1996. The Company will then
prepare a Certificate of Amendment to its Certificate of Incorporation with the
Secretary of State of the State of Nevada effecting (1) the changing of the name
of the Company from Everest Security Systems Corporation to Guardian
International, Inc. and (2) the authorization two new classes of common stock of
the Company designated as Class A Voting Common Stock ("Class A Common Stock")
and Class B Nonvoting Common Stock
<PAGE>
("Class B Common Stock") and the establishment of the relative rights, powers
and limitations of the Class A and Class B Common Stock. A copy of the proposed
Amendment is set forth as Exhibit A to this Information Statement.
EXECUTIVE OFFICES
The Company's principal executive offices are located at 3880
North 28 Terrace, Hollywood, Florida 33020-1118.
DISSENTERS' RIGHT OF APPRAISAL
In accordance with Section 92A.380 of the Nevada General
Corporation Law, the Certificate of Incorporation, Bylaws and the Resolution of
the Board of Directors, a stockholder is not entitled to dissent from or obtain
payment of the fair value of his shares as a result of this Proposals.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of
September 10, 1996, based on information obtained from the transfer agent,
security holders, and/or company records, with respect to any person who is
known to the registrant to be (a) the beneficial owner of more than five percent
(5%) of the Company's Common Stock, (b) the executive officer and/or director of
the Company, and (c) the directors and officers of the Company as a group.
Name and Address Amount and Nature of Percentage of
Beneficial Owner Beneficial Ownership Beneficial
Ownership
- ---------------------------- ------------------------ ------------
Harold Ginsburg (1) 903,533 14%
3651 N. 55th Avenue
Hollywood, Florida 33021-2343
Rhonda Ginsburg (2) 629,245 09.75%
1209 South Ocean Drive, Apt. 1709
South Hollywood, Florida 33019
Richard Ginsburg (3) 629,246 09.75%
P.O. Box 800207
Miami, Florida 33280-0207
Sheilah Ginsburg (4) 903,533 14%
3651 N. 55th Avenue
Hollywood, Florida 33021-2343
International Treasury &
Investment Ltd (5) 1,085,000 16.81%
Hirzel House
Smith Street
<PAGE>
St. Peter, Channel Islands
Royal Bank of Scotland 400,000 06.1979%
Talstrasse 82
8001 Zurich CH, Switzerland
All Officers and Directors 3,065,557 47.5%
as a Group
- -------------------------------------------------------------------------------
(1) Harold Ginsburg is a Director of Guardian International, Inc. (the
"Company"). Mr. Ginsburg also has the power to vote the 1,000,000
shares of International Treasury & Investments Ltd. pursuant to an
irrevocable voting proxy. Mr. Ginsburg has the power to vote a total of
1,903,533 shares or 29.4947% of the Company's Common Stock.
(2) Rhonda Ginsburg is Vice-President of the Company.
(3) Richard Ginsburg is the President and a Director of the Company.
(4) Sheilah Ginsburg is the Secretary/Treasurer and a Director of the Company.
(5) International Treasury & Investments Ltd. gave Harold Ginsburg (or his
designee) an irrevocable voting proxy for 1,000,000 of its shares for a
period of two (2) years, pursuant to the Agreement and Plan of Merger
dated August 15, 1996.
***Pursuant to the Plan and Agreement of Merger dated August 15, 1996
between Everest Security Systems Corporation and Guardian International, Inc.
("Merger Agreement"), International Treasury and Investments, Limited ("ITI")
pledged one million (1,000,000) shares of common stock of Guardian
International, Inc., held by it, as security for certain obligations of G.M.
Capital Partners, Ltd. in accordance with a Stock Pledge Agreement executed in
connection with the Merger Agreement. G.M. Capital Partners, Ltd. was unable to
honor its obligation under the Merger Agreement within the set time period and
as a result the one million (1,000,000) shares are to be disbursed to the
pre-merger shareholders of Guardian International, Inc. on or about October 31,
1996 in the following manner:
Richard Ginsburg 195,000
Harold Ginsburg 280,000
Sheilah Ginsburg 280,000
Rhonda Ginsburg 195,000
Robert Kasky 50,000
DESCRIPTION OF SECURITIES
Under the Proposals, the outstanding common stock will be
called Class A Voting Common Stock and a new class of common stock designated as
Class B Nonvoting Common Stock will be created. Upon the filing of the
Certificate of Amendment with the Secretary of State of the State of Nevada,
every issued and outstanding share of common stock of the
<PAGE>
Company shall become and be deemed to be, and shall automatically convert into,
one share of Class A Voting Common Stock, par value $0.001, and 484,035 shares
of Class B Nonvoting Common Stock, par value $0.001, shall be authorized. The
rights, powers and limitations of Class A Voting Common Stock and Class B
Nonvoting Common Stock shall be identical, except as otherwise provided in the
Article Fourth of the Company's Amended Certificate of Incorporation, as
proposed to be amended. The full text of Article Fourth as proposed to be
amended is set forth in Exhibit A to this information statement as is
incorporated herein by reference. The following summary should be read in
conjunction with, and is qualified in its entirety by reference to, such Exhibit
A. The table set forth below summarizes the relative, powers, preferences and
limitations of the Class A Voting Common Stock and Class B Nonvoting Common
Stock as proposed:
Class A Voting Class B Nonvoting
Common Stock Common Stock
- -----------------------------------------------------------------------------
Voting rights 1 0
(per share)
Dividend rights pro rata share of dividends pro rata share of dividends
(Cash, property or of Class A Voting Common of Class B Nonvoting
securities) Stock Common Stock
(per share)
Conversion Rights May convert Class B
Nonvoting Common Stock
into the same amount of
Class A Voting Common
Stock at any time, at
holder'selection, provided,
that each
--------
holder of Class B Nonvoting
Common Stock will not
directly or indirectly own,
control or have power to
vote more than
they are permitted
under any law, rule,
regulation or other
requirement of any judicial
body.
Preemptive, subscription
and redemption rights None None
Liquidation rights Pro rata shares of Pro rata share of assets
assets remaining after remaining after payment of
payment of all liabilities all liabilities
<PAGE>
- -------------------------------------------------------------------------------
Voting Rights
The holders of Class A Voting Common Stock
("Class A") will be entitled to one (1) vote per share on all matters to be
voted on by the corporation's stockholders, and except as otherwise required
by law, the holders of Class B Nonvoting Common Stock ("Class B") will have
no right to vote their shares of Class B on any matters to be voted on by the
corporation's stockholders.
Dividends
When and as dividends are declared thereon, whether payable in cash,
property or securities of the corporation, the holders of Class A and the
holders of Class B will be entitled to share ratably according to the number of
shares of Class A or Class B held by them, in such dividends; provided, that if
dividends are declared which are payable in shares of Class A or Class B,
dividends will be declared which are payable at the same rate on both classes of
common stock, and the dividends payable in shares of Class A to holders of Class
A, and the dividends payable in shares of Class B will be payable to the holders
of Class B.
Conversion of Class B Nonvoting Common Stock
At any time and from time to time, each record holder of Class B will be
entitled to convert any and all of the shares of such holder's Class B into the
same number of shares of Class A at holder's election, provided, that each
holder of Class B shall only be entitled to convert any share or shares of Class
B to the extent that after giving effect to such conversion such holder or its
affiliates shall not directly or indirectly own, control or have power to vote a
greater quantity of securities of any kind issued by the Company than such
holder and its affiliates are permitted to own, control or have power to vote
under any law or under any regulation, rule or other requirement of any
governmental authority at any time applicable to such holder and its affiliates.
Each conversion of shares of Class B into shares of Class A will be
effected by the surrender of the certificate or certificates representing the
shares to be converted at the principal office of the Company at any time during
normal business hours, together with a written notice by the holder of such
Class B stating that such holder desires to convert the shares, or a stated
number of the shares, of Class B represented by such certificate or certificates
into Class A and a written undertaking that upon such conversion such holder and
its affiliates will not directly or indirectly own, control or have the power to
vote a greater quantity of securities of any kind issued by the Company than
such holders and its affiliates are permitted to own, control or have the power
to vote under any applicable law, regulation, rule or other governmental
requirement. Such conversion will be deemed to have effected as of the close of
business on the date on which certificate or certificates have been surrendered
and such notice has been received, and at such time the rights of the holder of
the converted Class B as such holder will cease and the person or persons in
whose name or names the certificate or certificates for shares of Class A are to
be issued upon such conversion will be deemed to have become the holder or
holders of record the shares of Class A represented thereby.
<PAGE>
Promptly after such surrender and the receipt of such written notice, the
Company will issue and deliver in accordance with the surrendering holder's
instructions (i) the certificate or certificates for the Class A issuable upon
such conversion and (ii) a certificate representing any Class B which was
represented by the certificate or certificates delivered to the Company in
connection with such conversion but which was not converted.
If the Company in any manner subdivides or combines the outstanding
shares of one class of either Class A or Class B, the outstanding shares of the
other class will be proportionately subdivided or combined.
In the case of, and as a condition to, any capital reorganization of, or any
reclassification of the capital stock of, the Company (other than a subdivision
or combination of shares of Class A or Class B into a greater or lesser number
of shares (whether with or without par value) or a change in the par value of
Class A or Class B or from par value to no par value) or in the case of, and as
a condition to, the consolidation or merger of the Company with or into another
corporation (other than a merger in which the corporation is the continuing
corporation and which does not result in any reclassification of outstanding
shares of Class A or Class B), each share of Class B shall be convertible into
the number of shares of stock or other securities or property receivable upon
such reorganization, reclassification, consolidation or merger by a holder of
the number of shares of Class A of the Company in which such shares of Class B
was convertible immediately prior to such reorganization, reclassification,
consolidation or merger; and, in any such case, appropriate adjustment shall be
made in the application of the provisions set forth in this paragraph with
respect to the rights and interests thereafter of the holders of Class B to the
end that the provisions set forth in this paragraph (including provisions with
respect to the conversion rate) shall thereafter be applicable, as nearly as
they reasonably may be, in relation to any shares of stock or other securities
or property thereafter deliverable upon the conversion of the shares of Class B.
The shares of Class B which are converted into shares of Class A as
provided herein shall not be reissued.
The Company will at all times reserve and keep available out of its
authorized but unissued shares of Class A or its treasury shares, solely for the
purpose of issue upon conversion of the Class B as provided above, such number
of Class A as shall then be issuable upon the conversion of all then outstanding
shares of Class B (assuming that all such shares of Class B are held by persons
entitled to convert such shares into Class A).
The issuance of certificates for Class A upon the conversion of Class B
will be made without charge to the holders of such shares for any issuance tax
in respect thereof or other cost incurred by the Company in connection with such
conversion and the related issuance of Class A. The Company will not close its
books against the transfer of Class B or Class A issued or issuable upon the
conversion of Class B in any manner which would interfere with the timely
conversion of Class B.
Liquidation Rights
In the event any liquidation, dissolution or winding up of the Company,
<PAGE>
whether voluntary or involuntary, the holders of Class A and Class B shall be
entitled to share ratably, according to the number of shares of Class A or Class
B held by them, in the remaining assets of the Company available for
distribution to its stockholders.
Transferability
The Class A and Class B will be freely transferable, and except for federal
and state securities law restrictions on directors, officers and other
affiliates of the Company and on persons holding "restricted" stock. Company
stockholders will not be restricted in their ability to sell or transfer shares
of Class A or Class B.
Mergers And Consolidations
Each holder of Class A and Class B will be entitled to receive the same per
share consideration in a merger or consolidation of the Company (whether or not
the Company is the Surviving Corporation), except that any securities issued in
respect of the Class B may have different or lesser voting rights than
securities issued in respect of the Class A.
Preemptive, Subscription And Redemption Rights
Neither the Class A nor the Class B will carry any preemptive,
subscription and redemption rights enabling a holder to subscribe for or receive
shares of any class of stock of the Company or any other securities convertible
into shares of any class of stock of the Company.
INTERESTS OF CERTAIN PERSONS
The Ginsburgs have an interest in the implementation of the
Proposals to authorize and issue Class A and Class B because, as above, the
Proposals may enhance the ability of the Ginsburgs to retain voting control of
the Company even if it disposes of a substantial portion of its shares of Class
B.
CHANGE OF THE NAME OF THE COMPANY
On September ___, 1996, pursuant to the Agreement and Plan of
Merger dated August 15, 1996, the Board of Directors of the Company determined
it advisable to amend the Company's Certificate of Incorporation to change its
name from Everest Security Systems Corporation to Guardian International, Inc.
By Order of the Board of Directors
(signature of Sheilah Ginsburg appears here)
------------------------------
SHEILAH GINSBURG
SECRETARY
Dated: November 14, 1996
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT OF ARTICLE OF INCORPORATION
OF
GUARDIAN INTERNATIONAL, INC.
We the undersigned Richard Ginsburg, President and Sheilah
Ginsburg, Secretary, of Guardian International, Inc., a Nevada corporation (the
"Company"), do hereby certify:
That the Board of Directors of said corporation at a meeting
duly convened, held on the 14th day of November, 1996, adopted a resolution to
amend the original articles as follows:
RESOLVED, Article First is deleted in its entirety and the
following is inserted in lieu thereof:
"FIRST. The name of the corporation is Guardian
International, Inc."
RESOLVED, Article Fourth is deleted in its entirety and the
following is inserted in lieu thereof:
"FOURTH. The amount of the total authorized capital stock of
the Company is 100,485,035 shares, consisting of: (i) 100,000,000 shares of
'Class A Voting Common Stock,' par value $0.001 per share; and (ii) 484,035
shares of 'Class B Nonvoting Common Stock,' par value $0.001 per share.
Except as otherwise provided herein, all shares of
Class A Voting Common Stock and Class B Nonvoting Common Stock will be
identical and will entitle the holders thereof to the same rights and
privileges.
1. Voting Rights. The holders of Class A Voting Common Stock
will be entitled to one (1) vote per share on all matters to be voted on by the
corporation's stockholders, and except as otherwise required by law, the holders
of Class B Nonvoting Common Stock will have no right to vote their shares of
Class B Nonvoting Common Stock on any matters to be voted on by the
corporation's stockholders.
2. Dividends. When and as dividends are declared thereon,
whether payable in cash, property or securities of the corporation, the holders
of Class A Voting Common Stock and the holders of Class B Nonvoting Common Stock
will be entitled to share ratably according to the number of shares of Class A
Voting Common Stock or Class B Nonvoting Common Stock held by them, in such
dividends; provided, that if dividends are declared which are payable in shares
of Class A Voting Common Stock or Class B Nonvoting Common Stock, dividends will
be declared which are payable at the same rate on both classes of common stock,
and the dividends payable in shares of Class A Voting Common Stock to holders of
Class A Voting Common Stock, and the dividends payable in shares of Class B
Nonvoting Common Stock will be payable to the holders of Class B Nonvoting
Common Stock.
<PAGE>
3. Liquidation Rights. In the event any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Class A Voting Common Stock and Class B Nonvoting Common Stock shall
be entitled to share ratably, according to the number of shares of Class A
Voting Common Stock or Class B Nonvoting Common Stock held by them, in the
remaining assets of the Company available for distribution to its stockholders.
4. Conversion of Class B Nonvoting Common Stock.
(a) At any time and from time to time, each record holder of Class B
Nonvoting Common Stock will be entitled to convert any and all of the shares of
such holder's Class B Nonvoting Common Stock into the same number of shares of
Class A Voting Common Stock at holder's election, provided, that each holder of
Class B Nonvoting Common Stock shall only be entitled to convert any share or
shares of Class B Nonvoting Common Stock to the extent that after giving effect
to such conversion such holder or its affiliates shall not directly or
indirectly own, control or have power to vote a greater quantity of securities
of any kind issued by the Company than such holder and its affiliates are
permitted to own, control or have power to vote under any law or under any
regulation, rule or other requirement of any governmental authority at any time
applicable to such holder and its affiliates.
(b) Each conversion of shares of Class B Nonvoting Common Stock
into shares of Class A Voting Common Stock will be effected by the surrender of
the certificate or certificates representing the shares to be converted at the
principal office of the Company at any time during normal business hours,
together with a written notice by the holder of such Class B Nonvoting Common
Stock stating that such holder desires to convert the shares, or a stated number
of the shares, of Class B Nonvoting Common Stock represented by such certificate
or certificates into Class A Voting Common Stock and a written undertaking that
upon such conversion such holder and its affiliates will not directly or
indirectly own, control or have the power to vote a greater quantity of
securities of any kind issued by the Company than such holders and its
affiliates are permitted to own, control or have the power to vote under any
applicable law, regulation, rule or other governmental requirement. Such
conversion will be deemed to have effected as of the close of business on the
date on which certificate or certificates have been surrendered and such notice
has been received, and at such time the rights of the holder of the converted
Class B Nonvoting Common Stock as such holder will cease and the person or
persons in whose name or names the certificate or certificates for shares of
Class A Voting Common Stock are to be issued upon such conversion will be deemed
to have become the holder or holders of record the shares of Class A Voting
Common Stock represented thereby.
(c) Promptly after such surrender and the receipt of such written
notice, the Company will issue and deliver in accordance with the surrendering
holder's instructions (i) the certificate or certificates for the Class A Voting
Common Stock issuable upon such conversion and (ii) a certificate representing
any Class B Nonvoting Common Stock which was represented by the certificate or
certificates delivered to the Company in connection with such conversion but
which was not converted.
(d) If the Company in any manner subdivides or combines the
outstanding shares of one class of either Class A Voting Common Stock or Class B
Nonvoting Common Stock, the outstanding shares of the other class will be
proportionately subdivided or combined.
<PAGE>
(e) In the case of, and as a condition to, any capital reorganization of,
or any reclassification of the capital stock of, the Company (other than a
subdivision or combination of shares of Class A Voting Common Stock or Class B
Nonvoting Common Stock into a greater or lesser number of shares (whether with
or without par value) or a change in the par value of Class A Voting Common
Stock or Class B Nonvoting Common Stock or from par value to no par value) or in
the case of, and as a condition to, the consolidation or merger of the Company
with or into another corporation (other than a merger in which the corporation
is the continuing corporation and which does not result in any reclassification
of outstanding shares of Class A Voting Common Stock or Class B Nonvoting Common
Stock), each share of Class B Nonvoting Common Stock shall be convertible into
the number of shares of stock or other securities or property receivable upon
such reorganization, reclassification, consolidation or merger by a holder of
the number of shares of Class A Voting Common Stock of the Company in which such
shares of Class B Nonvoting Common Stock was convertible immediately prior to
such reorganization, reclassification, consolidation or merger; and, in any such
case, appropriate adjustment shall be made in the application of the provisions
set forth in this paragraph with respect to the rights and interests thereafter
of the holders of Class B Nonvoting Common Stock to the end that the provisions
set forth in this paragraph (including provisions with respect to the conversion
rate) shall thereafter be applicable, as nearly as they reasonably may be, in
relation to any shares of stock or other securities or property thereafter
deliverable upon the conversion of the shares of Class B Nonvoting Common Stock.
(f) The shares of Class B Nonvoting Common Stock which are
converted into shares of Class A Voting Common Stock as provided herein shall
not be reissued.
(g) The Company will at all times reserve and keep available out of its
authorized but unissued shares of Class A Voting Common Stock or its treasury
shares, solely for the purpose of issue upon conversion of the Class B Nonvoting
Common Stock as provided above, such number of Class A Voting Common Stock as
shall then be issuable upon the conversion of all then outstanding shares of
Class B Nonvoting Common Stock (assuming that all such shares of Class B
Nonvoting Common Stock are held by persons entitled to convert such shares into
Class A Voting Common Stock).
(h) The issuance of certificates for Class A Voting Common Stock
upon the conversion of Class B Nonvoting Common Stock will be made without
charge to the holders of such shares for any issuance tax in respect thereof or
other cost incurred by the Company in connection with such conversion and the
related issuance of Class A Voting Common Stock. The Company will not close its
books against the transfer of Class B Nonvoting Common Stock or Class A Voting
Common Stock issued or issuable upon the conversion of Class B Nonvoting Common
Stock in any manner which would interfere with the timely conversion of Class B
Nonvoting Common Stock."
The number of shares of the corporation outstanding and
entitled to vote on an amendment to the Articles of Incorporation is 6,453,804;
that the said change and amendment have been consented to and approved by a
majority vote of the stockholders holding at least a majority of each class of
stock outstanding and entitled to vote thereon.
<PAGE>
(signature of Richard Ginsburg appears here)
--------------------------------
Richard Ginsburg, President
(signature of Sheilah Ginsburg appears here)
--------------------------------
Sheilah Ginsburg, Secretary
State of ___Florida____________
County of_____Broward________
On November 14, 1996, personally appeared before me, a Notary
Public, Richard Ginsburg and Sheilah Ginsburg, who acknowledged that they
executed the above instrument.
(Signature of L. Marlene Crossley)
-----------------------------
(Signature of Notary)
34
<PAGE>
