SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A NO. 1
CURRENT REPORT
(ORIGINALLY FILED ON JANUARY 3, 1997)
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
GUARDIAN INTERNATIONAL INC.
(FORMERLY EVEREST SECURITY SYSTEMS CORPORATION,
FORMERLY EVEREST FUNDING CORPORATION, FORMERLY BURNINGHAM ENTERPRISES, INC.)
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(Exact name of the registrant as specified in charter)
Nevada 58-1799634
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(State of Incorporation) (I.R.S. Employer ID No.)
3880 NORTH 28TH TERRACE, HOLLYWOOD, FLORIDA 33020-1118
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(Address of principal executive offices)
TELEPHONE NUMBER: (954) 926-1800
EVEREST SECURITY SYSTEMS CORPORATION, 823 NW 57TH STREET,
FORT LAUDERDALE, FLORIDA 33309
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(Former name or address, if changed since last report)
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Items 5 and 7 of the Registrant's Form 8-K filed on January 3, 1997 are
hereby amended in their entirety by the following:
Item 5. Other Events
The Company had audited financial statements prepared as of August 31,
1996, including the consolidated balance sheet of the Company 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 the Item 7 below.
Item 7. Financial Statements and Exhibits
(a) Financial Statements
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GUARDIAN INTERNATIONAL, INC.
FINANCIAL STATEMENTS AS OF AUGUST 31, 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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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.
Miami, Florida,
November 7, 1996.
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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
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Total long term debt 4,650,698
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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 (1,056,044)
Stock subscription receivables (201,358)
-----------
Total Liabilities and Shareholders' Equity 3,104,546
-----------
$10,383,833
===========
The accompanying notes to financial statements are an integral part of this
statement.
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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
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Total revenues 1,965,273
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OPERATING EXPENSES:
Monitoring - primarily salaries 238,098
Installation 87,859
General and administrative 919,773
Amortization of customer contracts 395,810
Depreciation and amortization 87,596
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Total operating expenses 1,729,136
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Income from operations 263,137
INTEREST EXPENSE 351,767
Loss before provision for taxes (115,630)
PROVISION FOR TAXES (63,000)
Net loss $ (178,630)
==========
Loss per share $ (0.06)
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Average number of shares outstanding 3,226,902
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The accompanying notes to financial statements are an integral part of this
statement.
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<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996
ADDITIONAL STOCK
COMMON STOCK PAID-IN ACCUMULATED SUBSCRIPTION
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 3,226,902 $ 3,227 $ 1,060,903 $ (877,414) $ -- $ 186,716
Issuance of stock in connection
with Everest acquisition 3,226,902 3,227 4,962,429 -- (201,358) 4,764,298
Distribution to shareholder -- -- (1,667,838) -- -- (1,667,838)
Net loss for period -- -- -- (178,630) -- (178,630)
----------- ----------- ----------- ----------- ----------- -----------
Balance, August 31, 1996 6,453,804 $ 6,454 $ 4,355,494 $(1,056,044) $ (201,358) $ 3,104,546
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
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GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (178,630)
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 169
Accounts payable and accrued liabilities 148,188
Deferred taxes 63,000
Unearned revenue 103,025
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Net cash provided by operating activities 421,689
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (150,563)
Acquisition of customer accounts (2,752,832)
Cash acquired in acquisition 3,153,330
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Net cash provided by investing activities 249,935
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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)
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Net cash provided by financing activities 2,494,858
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Net change in cash 3,166,482
Cash, beginning of period 14,263
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Cash, end of period $ 3,180,745
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NONCASH INVESTING AND FINANCING ACTIVITY:
Financed acquisition of property $ 58,250
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Payable to shareholder $ 1,667,838
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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.
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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 for cancellation of their existing
Capital Appreciation Rights, as defined in the loan agreement. Also, in
accordance with the terms of an agreement, the financial institution is entitled
to receive an additional 150,000 shares of Class B non voting common stock.
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,
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1996 1995
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REVENUES, NET $ 2,833,000 $ 1,508,000
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NET LOSS $ (396,200) $ (309,280)
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LOSS PER SHARE $ (0.07) $ (0.08)
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WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 5,383,693 3,844,740
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DESCRIPTION OF BUSINESS
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The Company operates a central monitoring alarm station and sells and
installs alarm systems for residential and commercial customers in Florida.
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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 acquired from alarm dealers are reflected at cost. The
cost of acquired accounts in an acquisition is based on the estimated fair value
at the date of acquisition and is included in "Customer accounts, net" in the
accompanying consolidated balance sheets. Costs applicable to internally
generated customer accounts are expensed as incurred. Customer accounts that are
capitalized 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.
REVENUE RECOGNITION
Revenues are recognized when installation of security alarm systems has
been performed and when monitoring services are provided. Customers are billed
for monitoring services primarily on a monthly or quarterly basis in advance of
the period in which such services are provided. Unearned 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, except in cases where the Company maintains ownership of
the equipment installed, in which case the Company capitalizes the cost of the
equipment to property and equipment and amortizes the amount over a seven year
period. 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.
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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.
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
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5,180,503
Amortization and write-off of customer
accounts (395,810)
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Balance, August 31, 1996 $ 4,784,693
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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,
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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.
3 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
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1,416,455
Less accumulated amortization (75,428)
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$ 1,341,027
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Deferred financing costs, totaling $422,761, 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 three years, 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.
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6. INCOME TAXES
The components of deferred tax assets and liabilities at August 31, 1996
are as follows:
Deferred Tax Assets -
Net operating loss carry forwards $ 48,500
Allowance for doubtful accounts 22,500
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Total deferred tax assets 71,000
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Deferred Tax Liabilities -
Difference in amortization of customer
contracts 120,200
Other 13,800
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Total deferred tax liabilities 134,000
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Net deferred tax liability $ 63,000
========
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 carry forwards for
federal income tax purposes of approximately $143,000 which expires in 2010.
These net operating loss carry forwards 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.
7. 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 5,383,693 and 3,844,740
for the eight months ended August 31, 1996 and 1995, respectively.
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8. 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.
(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.
9. STOCK OPTIONS
The Company, through Everest, has issued stock options to various employees
to purchase 100,000 and 10,000 shares of common stock at $2 and $3 per share,
respectively, and issued options to purchase 74,720 shares at $2 per share to an
investment banker. As of August 31, 1996, all stock options were exercisable.
The following is a summary of stock option activity for the eight months ended
August 31, 1996:
WEIGHTED AVERAGE
OPTION SHARES EXERCISE PRICE
------------- --------------
Outstanding at January 1, 1996
Granted -- --
Assumed in connection with merger 184,720 $2.05
Canceled -- --
Exercised -- --
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Outstanding at August 31, 1996 184,720 $2.05
======= =====
As discussed above, the stock options were issued by Everest. Accordingly, no
compensation expense has been recognized for the issuance of the stock options
in the accompanying financial statements. The Company applies Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for stock based compensation. Had the pro
forma compensation been recorded based on the fair
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value at the grant dates for awards consistent with the method of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"), the pro forma net loss and the pro forma net
loss per share would have increased as follows:
UNAUDITED
FOR THE EIGHT MONTHS ENDED
AUGUST 31,
--------------------------
1996 1995
---- ----
Pro forma net loss:
As reported $396,200 $309,280
Pro forma for SFAS No. 123 $414,100 $ (a)
Pro forma net loss per share:
As reported $ 0.07 $ 0.08
Pro forma for SFAS No. 123 $ 0.08 $ (a)
(a) There were no options granted between January 1, 1995 and August 31,
1995.
The value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model using the following weighted average
assumptions: expected volatility approximating 70%, risk-free interest rate
approximating 6%, expected dividends of $0 and expected lives of 4 years.
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SIGNATURES
Pursuant to the requirements of the Securities and 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.
Date: April 22, 1997
By: /s/ ROBERT K. NORRIS
-----------------------------------
Robert K. Norris
Chief Financial Officer and Senior
Executive Vice President
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