SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
January 3, 1997
GUARDIAN INTERNATIONAL INC.
(Formerly Everest Security Systems Corporation,
formerly Everest Funding Corporation, formerly Burningham Enterprises, Inc.)
----------------------------------------------------------------------------
(Exact name of the registrant as specified in charter)
Nevada 58-2201633
------------------------- --------------------------------
(State of Incorporation) (I.R.S. Employer ID No.)
3880 North 28th Terrace, Hollywood, Florida 33020-1118
------------------------------------------------------------------------------
(Address of principal executive offices)
Telephone Number: (954) 926-1800
Everest Security Systems Corporation
823 NW 57th Street
Fort Lauderdale, Florida 33309
- -------------------------------------------------------------------------------
(Former name or address, if changed since last report)
<PAGE>
Item 5. Other Events
The Company had audited financial statements prepared as of August 31,
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for the eight months then ended.
The financial statements are filed under Item 7. below.
Item 7. Financial Statements and Exhibits
(a) Financial Statements
GUARDIAN INTERNATIONAL, INC.
FINANCIAL STATEMENTS AS OF AUGUST 31, 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Guardian International, Inc.
We have audited the accompanying consolidated balance sheet of Guardian
International, Inc. as of August 31, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the eight
months then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guardian International, Inc. as
of August 31, 1996 and the results of its operations and cash flows for the
eight months then ended in conformity with generally accepted accounting
principles.
McKEAN, PAUL, CHRYCY, FLETCHER & CO.
November 7, 1996
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996
ASSETS
CURRENT ASSETS:
Cash $ 3,180,745
Accounts receivable, net of $ 66,347
allowance for doubtful accounts 540,790
Other current assets 136,545
Total current assets 3,858,080
PROPERTY & EQUIPMENT:
Station equipment 514,019
Furniture and office equipment 37,404
Leasehold improvements 105,829
--------------
657,252
Accumulated depreciation and amortization (268,387)
388,865
CUSTOMER ACCOUNTS, net 4,784,693
INTANGIBLE ASSETS, net 1,341,027
OTHER 11,168
Total Assets $10,383,833
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expense $ 608,365
Payable to shareholder 1,750,000
Unearned revenue 163,905
Current portion of debt 43,319
-------------
Total current liabilities 2,565,589
DEFERRED TAX LIABILITY 63,000
LONG TERM DEBT:
Equipment installment notes payable 120,554
Note payable to financial institution 4,530,144
Total long term debt 4,650,698
SHAREHOLDERS' EQUITY:
Common stock, 100,000,000 shares authorized, $.001 par
value, 6,453,804 shares issued and 6,443,726 outstanding 6,454
Additional paid-in capital 4,355,494
Accumulated deficit (1,055,842)
Stock subscription receivables (201,358)
Treasury stock, at cost (202)
------------
Total Liabilities and Shareholders' Equity 3,104,546
$10,383,833
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996
REVENUES:
Monitoring $ 1,670,171
Installation 240,642
Other 54,460
-------------
1,965,273
OPERATING EXPENSES:
Monitoring - primarily salaries 238,098
Installation 87,859
General and administrative 919,571
------------
1,245,528
Income before interest expense,
amortization, depreciation and
provision for taxes 719,745
INTEREST EXPENSE, AMORTIZATION
AND DEPRECIATION:
Interest expense 351,767
Amortization of customer contracts 395,810
Depreciation and amortization 87,596
-------------
835,173
Loss before provision for taxes (115,428)
PROVISION FOR TAXES (63,000)
Net loss $ (178,428)
==========
Pro Forma Data (Unaudited):
Loss before provision for taxes $ (504,457)
Pro forma income tax credit 108,515
-------------
Pro forma net loss $ (395,942)
===========
Pro forma loss per share $ ( 0.06)
-------------
Pro forma weighted average shares outstanding 6,453,804
============
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDER'S EQUITY
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996
Common Stock Common Stock Additional Paid in
Shares Amount Capital
Balance, December 31, 3,226,902 $3,227 $1,060,903
1995
Issuance of stock in 3,226,902 3,227 4,962,429
connection with
Everest acquisition
Distribution to - - (1,667,838)
shareholder
Net loss for period - - -
Balance, August 31, 6,453,804 $6,454 $4,355,494
========= ====== ==========
1996
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDER'S EQUITY
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996
(Continued from above)
Accumulated Stock subscription Treasury Total
Deficit Receivable Stock
Balance, $(877,414) $ - $ - $186,716
December 31,
1995
Issuance of stock - (201,358) (202) 4,764,096
in connection with
Everest
acquisition
Distribution to - - - (1,667,838)
shareholder
Net loss for period (178,428) - - (178,428)
----------
Balance, August
31, 1996 $(1,055,842) $(201,358) $(202) $3,104,546
===========================================================
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (178,428)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 87,596
Amortization of customer accounts 395,810
Provision for doubtful accounts 24,047
Changes in assets and liabilities:
Accounts receivable (221,516)
Other assets (33)
Accounts payable and accrued liabilities 148,192
Deferred taxes 63,000
Unearned revenue 103,025
--------------
Net cash provided by operating activities 421,689
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (150,563)
Acquisition of customer accounts (2,752,832)
Advances from Everest 3,115,619
Cash acquired in acquisition 37,711
---------------
Net cash provided by investing activities 249,935
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,372,309)
Proceeds from line of credit 3,979,649
Payment of shareholder loans (112,482)
-------------
Net cash provided by financing activities 2,494,858
------------
Net change in cash 3,166,482
CASH, BEGINNING OF PERIOD 14,263
CASH, END OF PERIOD $ 3,180,745
============
NONCASH INVESTING AND FINANCING ACTIVITY:
Financed acquisition of property $ 58,250
--------------
Payable to shareholder $ 1,667,838
------------
Value of Everest net assets acquired :
Subscriber accounts acquired $ 352,000
Goodwill $ 1,223,000
Other assets $ 332,743
Purchase price and assumed liabilities $ (1,870,032)
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 299,484
------------
The accompanying notes to financial statements are an integral
part of this statement.
<PAGE>
GUARDIAN INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Combination
On August 28, 1996, Everest Security Systems Corporation ("Everest -
the predecessor company") acquired all the outstanding common stock of
Guardian International, Inc. ("Guardian"), a non public company, by
issuing, 3,226,902 shares of Everest. In addition, the merger specified
that $1,750,000 shall be paid to the principal shareholder of Guardian as
consideration for consummating the transaction (including repayment of
shareholder loans of $82,162). The transaction has been accounted for under
the purchase method as a reverse acquisition with Guardian being deemed the
acquirer. The name of the surviving entity was changed from Everest to
Guardian (" the Company").
In addition, 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 amending certain covenants of the loan
agreement.
The historical financial statements prior to August 31, 1996 are those
of Guardian. The consolidated balance sheet at August 31, 1996, includes
the accounts of the surviving entity and its wholly-owned subsidiary. All
significant intercompany balances and transaction have been eliminated.
Unaudited proforma information giving effect to the acquisition as if it
occurred at the beginning of the periods reflected below is as follows:
Unaudited
8 months Ended August 31,
1996 1995
------ ----
Revenues, net $ 2,833,000 $ 1,508,000
========== ==========
Net loss $ (395,942) $ (309,280)
=========== ===========
Loss per share $ (0.06) $ (0,05)
============ =============
Weighted average
number of shares outstanding 6,453,804 6,453,804
========== ==========
<PAGE>
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.
Property and Equipment
Property and equipment are stated at cost and depreciated using
accelerated methods over the 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.
<PAGE>
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.
The Company has established deferred tax assets and liabilities for
temporary differences between financial statement and tax basis 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 eight months ended August 31, 1996
Balance, December 31, 1995 $2,075,671
Purchase of customer accounts 2,752,832
Customer accounts acquired in merger 352,000
------------
5,180,503
Amortization and write-off of customer
accounts (395,810)
------------
Balance, August 31, 1996 $ 4,784,693
==========
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 August 31, 1996, the Company withheld
$68,940 in connection with the acquisition of customer accounts which is
reflected as "accounts payable and accrued expenses" in the balance sheet.
1 INTANGIBLE ASSETS
Intangible assets consist of the following at August 31, 1996:
Amortization
Period Amount
Excess of acquisition cost over
the net assets acquired 10 years $ 1,223,000
Covenant not to compete, organization costs
and other Various 193,455
1,416,455
Less accumulated amortization ( 75,428)
------------
$ 1,341,027
Deferred financing costs will be incurred as a result of issuing to a
financial institution 484,035 shares of nonvoting Class B common stock as
described in Note 1 - "Business Combination". These costs will be charged to
operations as additional interest expense over the life of the related
indebtedness.
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 ($4,530,144 at August 31, 1996) under the agreement 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 subsequent to
August 31, 1996.
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 components of deferred tax assets and liabilities at August 31, 1996
are as follows:
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
<PAGE>
The conversion of Guardian from an S Corporation to C Corporation resulted in
recognition of the net deferred tax liability of $63,000 reflected above.
At August 31, 1996, the Company has net operating loss carryfowards for
federal income tax purposes of approximately $143,000 which expires 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 (UNAUDITED)
Pro Forma Income Tax Credit -
For informational purposes, the statement of operations includes a pro
forma income tax credit that would have resulted if the Company had been a C
Corporation and able to utilize its operating losses.
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
number of shares of common stock outstanding would be 6,453,804 and 6,453,804
for the eight months ended August 31, 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 each. At August 31, 1996 there were
6,453,804 shares of common stock issued and 6,443,726 shares outstanding.
Treasury stock is shown at cost, and as of August 31, 1996, consists 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 August 31, 1996 there remains
an outstanding balance of $201,358 ($179,760 of principal and $21,598 of
interest) under the notes receivables. The $201,358 has been reflected as "stock
subscriptions receivable" and a reduction of stockholder's equity in the
accompanying balance sheet. Management is in the process of attempting to
collect the outstanding amounts or have the applicable common shares returned.
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
<PAGE>
purchase 74,720 shares at $2 per share to an investment banker. As of August 31,
1996, none of these options have been exercised and all options expire on
December 31, 2000.
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.
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 hereunto duly authorized.
Guardian International, Inc.
(formerly Everest Security Systems
Corporation)
January __, 1997
By: /s
Richard Ginsburg, President
<PAGE>
