SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------------
Date of Report (Date of earliest event reported): February 23, 1998
GUARDIAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEVADA 0-28490 58-1799634
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3880 N. 28TH TERRACE
HOLLYWOOD, FLORIDA 33020-1118
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (954) 926-5200
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE>
This Current Report on Form 8-K/A is filed by Guardian International,
Inc. (the "Company") as an amendment to that certain Current Report on Form 8-K
filed by the Company on March 9, 1998.
ITEM 7 . FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
(a) Financial Statements of Business Acquired
The following audited financial statements of Mutual Central Services, Inc.
("Mutual") as of and for the years ended December 31, 1997 and 1996 are provided
herein:
(1) Independent Auditor's Report
(2) Balance Sheets of December 31, 1997 and 1996
(3) Statements of Operations and Retained Earnings for the years ended
December 31, 1997 and 1996
(4) Statements of Cash Flows for the years ended December 31, 1997 and
1996
(5) Notes to Financial Statements for the years ended December 31, 1997
and 1996
(b) Pro Forma Financial Information
The following unaudited pro forma combined financial information set forth,
for the respective periods and as of the dates indicated, the results of
operations and the financial position of the Company after giving effect to the
acquisition, effective February 1, 1998, by the Company of all of the
outstanding capital stock of Mutual, as if the transaction had been consummated
as of the respective dates indicated below.
The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that actually would have occurred if the acquisition had been
consummated as of such dates in accordance with the assumptions set forth below,
nor is it necessarily indicative of future operating results or financial
position.
The unaudited pro forma combined balance sheet as of January 31, 1997
reflects the acquisition as of the effective date of the transaction. The
unaudited pro forma condensed financial statement of operations for the period
ended December 31, 1997 reflects the acquisition as if the transaction had
occurred on January 1 of 1997.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
MUTUAL CENTRAL ALARM SERVICES, INC.
We have audited the accompanying balance sheets of MUTUAL CENTRAL ALARM
SERVICES, INC. as of December 31, 1997 and 1996, and the related statements of
income, shareholders' equity, and cash flows for the years 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 audits 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 MUTUAL CENTRAL ALARM SERVICES,
INC. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
February 6, 1998
<PAGE>
MUTUAL CENTRAL ALARM SERVICES, INC.
BALANCE SHEETS
DECEMBER 31,
-----------------------
ASSETS 1997 1996
---------- ----------
CURRENT ASSETS
Cash and Cash Equivalents $ 947,481 $ 634,873
Accounts Receivable, Net of allowance for
doubtful accounts of $15,000 and $40,000 893,772 745,248
Unbilled Receivables 63,096 45,230
Installment Receivable 86,938 28,274
Inventory 94,863 86,950
Investment in Marketable Securities 126,575 200,525
Due From Related Party 203,006 198,844
Prepaid Expenses and Other Current Assets 56,521 57,182
Deferred Taxes 55,000 12,700
---------- ----------
Total Current Assets 2,527,252 2,009,826
Installment Receivable 60,985 81,670
Property and Equipment, at cost, Net of Accumulated
Depreciation of $2,860,875 and $2,264,855 3,231,032 2,948,200
Acquisition Costs, at cost, Net of Accumulated
Amortization of $22,000 and $16,500 33,000 38,500
Investment 78,585 46,007
Other Assets 20,728 20,936
---------- ----------
TOTAL ASSETS $5,951,582 $5,145,139
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 877,917 $ 126,376
Due to Shareholders 80,000 20,000
Deferred Revenue 922,700 891,364
---------- ----------
Total Current Liabilities 1,880,617 1,037,740
Deferred Taxes 135,000 137,500
---------- ----------
TOTAL LIABILITIES 2,015,617 1,175,240
---------- ----------
Commitments and Contingencies -- --
SHAREHOLDERS' EQUITY
Common Stock - $.01 Par Value; Authorized,
Issued and Outstanding 3,400,000 shares 34,000 34,000
Additional Paid-in Capital 2,965,025 2,965,025
Retained Earnings 936,940 970,874
---------- ----------
Total Shareholders' Equity 3,935,965 3,969,899
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,951,582 $5,145,139
========== ==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
MUTUAL CENTRAL ALARM SERVICES, INC.
INCOME STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
NET SALES $ 5,405,146 $ 4,808,174
COST OF SALES 1,909,645 1,466,179
----------- -----------
GROSS PROFIT 3,495,501 3,341,995
----------- -----------
SELLING AND TECHNICAL EXPENSES
Salaries and Payroll Taxes 268,629 304,922
Other Selling Expenses 46,884 119,019
----------- -----------
Total Selling and Technical Expenses 315,513 423,941
----------- -----------
INCOME FROM OPERATIONS BEFORE GENERAL AND
ADMINISTRATIVE EXPENSES 3,179,988 2,918,054
----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES
Commission and Appreciation Expense 161,145 68,766
Salaries and Employee Benefits 945,562 419,336
Depreciation and Amortization 627,458 512,012
Professional Fees 56,012 57,363
Telephone Expense 251,997 239,923
Rent Expense 100,597 96,710
Certification and Union Fees 55,487 51,270
Insurance Expense 60,766 59,874
Computer Expense 22,353 22,011
Repairs and Maintenance 20,975 19,243
Bad Debt Expense 50,752 --
Other Operating Expenses 172,805 165,097
Franchise Taxes 11,000 9,851
----------- -----------
Total General and Administrative Expenses 2,536,909 1,721,456
----------- -----------
INCOME FROM OPERATIONS 643,079 1,196,598
----------- -----------
OTHER INCOME (EXPENSES)
Dividend Income 28,703 30,199
Interest Income 31,906 23,082
Non-Recurring Expenses (220,000) --
Income/Loss on Investment 32,578 (3,993)
----------- -----------
Total Other (Expenses) Income (126,813) 49,288
----------- -----------
NET INCOME BEFORE INCOME TAXES 516,266 1,245,886
INCOME TAXES (40,200) (119,474)
----------- -----------
NET INCOME $ 476,066 $ 1,126,412
=========== ===========
NET INCOME PER COMMON SHARE $ 0.14 $ 0.33
=========== ===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
MUTUAL CENTRAL ALARM SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 476,066 $ 1,126,412
Adjustments to Reconcile Net Income to Net
Cash Used by Operating Activities
Depreciation and Amortization 627,458 512,012
Changes in Certain Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (148,524) 46,249
(Increase) in Unbilled Receivables (17,866) (45,230)
(Increase) in Installment Receivables (37,979) (109,944)
(Increase) in Inventory (7,913) (70,000)
(Increase) in Due From Related Party (4,162) (198,844)
Decrease (Increase) in Prepaid Expenses 661 (26,658)
(Increase) Decrease in Deferred Taxes (44,800) 35,900
Decrease in Other Assets 208 --
Increase (Decrease) in Accounts Payable
and Accrued Expenses 751,541 (54,812)
Increase in Deferred Revenues 31,336 55,317
----------- -----------
Total Cash Used by Operating Activities 1,626,026 1,270,402
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets, Net (904,790) (648,346)
Investment in LST (32,578) (46,007)
Sale of Marketable Securities 73,950 --
Distributions (510,000) (476,000)
----------- -----------
Total Cash Used by Investing Activities (1,373,418) (1,170,353)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to Shareholders 60,000 --
----------- -----------
Total Cash Provided By Financing Activities 60,000 --
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 312,608 100,049
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 634,873 534,824
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 947,481 $ 634,873
=========== ===========
CASH PAID DURING THE YEAR FOR:
Interest Expense $ -- $ --
=========== ===========
Income Taxes $ 82,719 $ 83,888
=========== ===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
MUTUAL CENTRAL ALARM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying financial statements include the accounts of
Mutual Central Alarm Services, Inc. (the "Company"), incorporated
under the laws of the state of New York on October 26, 1988. Its
51% owned subsidiary, Low Voltage Systems Technology, Inc.
("LST"), is not consolidated in the financial statements. As
discussed in Note 7 to the financial statement, LST was sold on
January 30, 1998.
b) LINE OF BUSINESS
The Company operates a central monitoring alarm station and sells
and installs alarm systems principally for commercial clients in
the New York City metropolitan area.
c) REVENUE RECOGNITION
Revenues are recognized when installation of security alarm
systems has been performed and when monitoring services are
provided. The Company designs, installs, services and monitors
security alarm systems, which are either sold outright ("customer
owned") or the Company retains title to the equipment ("Company
owned"). Installation revenue and related cost under customer
owned contracts and Company owned systems is recognized as the
installation is performed. Losses on contracts for which future
costs are anticipated to exceed revenues are recognized in the
period such losses are identified. Customers are billed for
monitoring services primarily on a monthly or quarterly basis in
advance of the period in which such services are provided.
Deferred revenue results from billings in advance of performance
of monitoring. 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.
d) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash
equivalents.
e) CONCENTRATION OF CREDIT RISK
The Company places its cash in what it believes to be a
credit-worthy financial institution. However, cash balances exceed
FDIC insured levels at various times during the year.
f) INVENTORY
Inventories, consisting primarily of parts required for
installations under contract and replacement parts, are valued at
the lower of cost or market. Cost is determined on the first-in,
first-out (FIFO) method.
<PAGE>
MUTUAL CENTRAL ALARM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) MARKETABLE SECURITIES
The Company determines the appropriate classification of
marketable securities at the time of purchase and re-evaluates
such designation at each balance sheet date. Marketable securities
have been classified as available-for-sale and are carried at fair
value. Gross unrealized gains and losses on marketable securities
at December 31, 1997 and 1996 are not material.
h) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method based upon the estimated useful
lives of the various classes of assets, which range from five to
ten years. Maintenance and repairs are charged to expense as
incurred.
i) ACQUISITION COSTS
Acquisition costs reflect customer accounts acquired from alarm
dealers and are reflected at cost. The cost of acquired accounts
in an acquisition is based on the estimated fair value at the date
of acquisition. 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.
j) 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.
k) EARNINGS PER SHARE
Earnings per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding
during the year. Weighted average common shares outstanding were
3,400,000. There were no common equivalent shares outstanding as
of December 31, 1997 and 1996.
<PAGE>
MUTUAL CENTRAL ALARM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
l) INCOME TAXES
The Company elected to be treated as an S Corporation effective in
1989. Accordingly, federal and substantially all state taxes are
the obligation of the Company's shareholders.
The Company is subject to New York City income taxes.
Income taxes are provided for based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". The liability
method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the reported amount of assets and liabilities
and their tax basis.
m) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, receivables,
inventory, investment in marketable securities, accounts payable
and accrued expenses and deferred revenue, approximates fair value
due to the relatively short maturity of these instruments.
n) LONG-LIVED ASSETS
In March 1995, Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", was issued (SFAS No. 121).
SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used or disposed of by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company has adopted this statement and
determined that no impairment loss need be recognized for
applicable assets of continuing operations.
o) NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("FAS 128") which requires presentation of basic earnings
per share ("Basic EPS") and diluted earnings per share ("Diluted
EPS") by all entities that have publicly traded common stock or
potential common stock (options, warrants, convertible securities
or contingent stock arrangements). FAS 128 also requires
presentation of earnings per share by an entity that has made a
filing or is in the process of filing with a regulatory agency in
preparation for the sale of those securities in a public market.
Basic EPS is computed by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period.
The computation of Diluted EPS does not assume conversion,
exercise or contingent exercise of securities that would have an
antidilutive effect on earnings. The statement is effective for
both interim and annual periods ending after December 15, 1997.
The effect on the Company's earnings per share resulting from the
adoption of FAS 128 is not expected to be significant.
<PAGE>
MUTUAL CENTRAL ALARM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company advanced $251,500 to its 51% subsidiary LST, to be
utilized to acquire equipment for resale and for working capital.
A promissory note called for repayment of $129,000 of the total
advance to commence May 1, 1998 and quarterly thereafter with
interest, until paid in full May 1, 1999. The remaining advances
were due on demand. Interest at 9% has been charged on the
advances. The advances were secured by all of LST's accounts
receivable.
(See Note 7).
During the period April 1, 1997 to November 30, 1997, the Company
purchased $204,000 of equipment for resale from LST.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following at
December 31,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Equipment in Sub-Premise $ 5,649,007 $ 4,749,376
Station Equipment 183,055 183,055
Vehicles 26,562 52,501
Leasehold Improvements 112,986 112,986
Furniture and Office Equipment 120,297 115,137
----------- -----------
6,091,907 5,213,055
Less: Accumulated Depreciation and
Amortization 2,860,875 2,264,855
----------- -----------
$ 3,231,032 $ 2,948,200
=========== ===========
</TABLE>
Depreciation and amortization expense for the years ended December
31, 1997 and 1996 was $627,458 and $512,012, respectively.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company is committed under a noncancellable operating lease
for its office space through 1999. The lease obligates the Company
to also pay real estate tax and porter wage escalations. The
following is a schedule by years of future minimum annual rental
payments required under this operating lease at December 31, 1997:
December 31, 1998 $ 87,960
December 31, 1999 90,560
---------
$ 178,520
=========
Rent expense for the years ended December 31, 1997 and 1996 was
$100,597 and $96,710, respectively.
<PAGE>
MUTUAL CENTRAL ALARM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 5 - INCOME TAXES
The components of the provision for income taxes is as follows at
December 31,:
1997 1996
------------- ----------
Current Tax Expense
U.S. Federal $ - $ -
State and Local 85,000 83,574
----------- ----------
Total Current 85,000 83,574
----------- ----------
Deferred Tax Expense
U.S. Federal $ - -
State and Local (44,800) 35,900
----------- ----------
Total Deferred (44,800) 35,900
----------- ----------
Total Tax Provision $ 40,200 $ 119,474
=========== ==========
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount and liabilities
for financial reporting purposes and amounts used for income tax
purposes. Significant components of the Company's deferred tax
assets and liabilities are as follows at December 31,:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred Tax Assets
Allowance for Bad Debts $ 1,500 $ 4,000
Unbilled Receivable - 2,700
Installment Receivable - (2,800)
Prepaid Expenses - (600)
Accounts Payable and Accrued Expenses 53,500 5,100
Deferred Revenue - 4,300
---------- ----------
Net Deferred Tax Assets $ 55,000 $ 12,700
========== ==========
Deferred Tax Liability
Installment Receivable $ - $ 8,200
Property and Equipment 131,400 125,700
Acquisition Costs 3,600 3,600
---------- ----------
Net Deferred Tax Liability $ 135,000 $ 137,500
========== ==========
</TABLE>
NOTE 6 - NON-RECURRING EXPENSES
The Company has incurred significant legal and accounting fees in
connection with the potential acquisition of all of its
outstanding stock. Included in accrued expenses at December 31,
1997 is $220,000, which would not have been incurred if not for
the potential acquisition.
<PAGE>
MUTUAL CENTRAL ALARM SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 7 - SUBSEQUENT EVENTS
On January 30, 1998, the Company sold its 51% interest in LST to
an unrelated third party for $375,000. Accordingly, the
accompanying financial statements do not consolidate LST's results
of operations. The sale agreement included a provision for LST to
repay 80% of the then outstanding amount due to the Company. The
remaining 20%, ($50,752), was written off by the Company and
included in bad debt expense at December 31, 1997. (See Note 2).
<PAGE>
<TABLE>
<CAPTION>
MUTUAL CENTRAL ALARM SERVICES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
COMMON STOCK
---------------------- ADDITIONAL RETAINED
SHARES AMOUNT PAID-IN CAPITAL EARNINGS TOTAL
--------- ------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,400,000 $34,000 $2,965,025 $ 320,462 $3,319,487
Net Income - For the Year Ended
December 31, 1996 - - - 1,126,412 1,126,412
Shareholder Distributions - - - (476,000) (476,000)
--------- ------- ---------- ----------- ----------
Balance at December 31, 1996 3,400,000 34,000 2,965,025 970,874 3,969,899
Net Income - For the Year Ended
December 31, 1997 - - - 476,066 476,066
Shareholder Distributions - - - (510,000) (510,000)
--------- ------- ---------- ----------- ----------
Balance at December 31, 1997 3,400,000 $34,000 $2,965,025 $ 936,940 $3,935,965
========= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Item 7. (b) Pro Forma Financial Information
<TABLE>
<CAPTION>
Guardian International, Inc.
Pro Forma Combined Balance Sheet
As of December 31, 1997
Unaudited
GUARDIAN MUTUAL CENTRAL
INTERNATIONAL, ALARM SERVICES,
INC. INC. PRO FORMA PRO FORMA
("GUARDIAN") ("MUTUAL") ENTRIES COMBINED
-------------- -------------- --------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 94,313 $ 947,481 $ 408,899 (1),(2) $ 1,450,693
Accounts receivable 539,512 1,043,806 (15,000) (2) 1,568,318
Prepaid expenses and
other current assets 121,223 480,965 (10,000) (2) 592,188
----------- ---------- ----------- -----------
Total current assets 755,048 2,472,252 383,899 3,611,199
Property and equipment, net 729,058 3,231,032 (3,132,229) (2) 827,861
Customer accounts, net of amortization 8,048,495 33,000 12,852,920 (2),(5) 20,934,415
Intangible assets, net 1,514,951 - 1,524,446 (3),(6) 3,039,397
Other assets 27,506 160,298 - 187,804
----------- ---------- ----------- -----------
-
Total assets $11,075,058 $5,896,582 $11,629,036 $28,600,676
=========== ========== =========== ===========
Current liabilities:
Accounts payable and
accrued expenses $ 781,879 $ 957,917 $ 636,228 (2) $ 2,376,024
Unearned revenue 242,168 922,700 - 1,164,868
Current portion of long term
obligations 73,201 - - 73,201
----------- ---------- ----------- -----------
Total current liabilities 1,097,248 1,880,617 636,228 3,614,093
Deferred taxes - 80,000 (80,000) (7) -
Long term obligations, net of
current portion 961,584 - 6,875,000 (1) 7,836,584
Shareholders' equity:
Series A 9-3/4% convertible
preferred stock 1,894 - 1,894
Series B 10-1/2% convertible
preferred stock - - 1,600 (1) 1,600
Class A common stock 9,004 34,000 (32,018) (1) 10,986
Class B common stock 634 - - 634
Additional paid in capital 12,091,050 2,965,025 6,815,813 (1) 21,871,888
Treasury stock (6,438) - - (6,438)
Retained deficit (3,079,918) 936,940 (2,587,587) (2) (4,730,565)
----------- ---------- ----------- -----------
Total shareholders' equity 9,016,226 3,935,965 4,197,808 17,149,999
----------- ---------- ----------- -----------
Total liabilities and
shareholders' equity $11,075,058 $5,896,582 $11,629,036 $28,600,676
=========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
<TABLE>
<CAPTION>
Guardian International, Inc.
Pro Forma Combined Statement of Operations
For the Year Ended December 31, 1997
Unaudited
PRO FORMA PRO FORMA
GUARDIAN MUTUAL ENTRIES COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Monitoring $ 3,772,108 $ 3,307,090 $ - $ 7,079,198
-
Installation 1,852,682 2,098,056 3,950,738
----------- ----------- ----------- -----------
-
Total revenues 5,624,790 5,405,146 - 11,029,936
Operating expenses
Monitoring 579,373 1,359,645 - 1,939,018
Installations 1,653,003 315,513 - 1,968,516
General and administrative 2,488,045 2,586,264 (550,000) (4) 4,524,309
Amortization of customer contracts 1,181,607 - 1,431,760 (2),(5) 2,613,367
Depreciation and amortization 295,666 627,458 169,383 (3) 1,092,507
----------- ----------- ----------- -----------
Total operating expenses 6,197,694 4,888,880 1,051,143 12,137,717
----------- ----------- ----------- -----------
Income (loss) from operations (572,904) 516,266 (1,051,143) (1,107,781)
Interest expense 1,001,187 - 679,504 (6) 1,680,691
----------- ----------- ----------- -----------
Net income (loss)
before taxes (1,574,091) 516,266 (1,730,647) (2,788,472)
Provision for (benefit from)
income taxes _ 40,200 (80,000) (7) (39,800)
----------- ----------- ----------- -----------
Net income (loss) $(1,574,091) $ 476,066 $(1,650,647) $(2,748,672)
=========== =========== =========== ===========
Preferred dividend (379,212) (8)
-----------
Net loss available to
common shareholders $(3,127,884)
-----------
Average common shares outstanding 9,624,577
-----------
Loss per common share $ (0.32)
===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE>
GUARDIAN INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) The cash portion of the acquisition (see Note 2) was funded with borrowings
of $6.25 million under the Company's existing credit facility with Heller
Financial, Inc. ("Heller") and proceeds from a $4.0 million preferred stock
investment from Westar Capital, Inc. ("Westar"). The investment consisted
of Westar purchasing 1,600,000 shares of newly issued Series B 10 1/2%
Convertible Cumulative Preferred Stock, par value $.001 (the "Preferred
Stock"), of the Company at $2.50 per share. The Preferred Stock is
convertible into shares of Class A Voting Common Stock, par value $.001
(the "Class A Stock") on a share for share basis and pay dividends at 10
1/2% per annum, payable quarterly in additional Preferred Stock.
(2) On February 23, 1998, the Company acquired 100% of the equity securities of
Mutual for approximately $10 million in cash and 1,981,700 shares of
Guardian unregistered Class A Stock, valued at $3.25 per share ($6,440,525
in the aggregate), given the restricted nature of these shares, a discount
factor was applied in their valuation. In addition, options to purchase
200,000 shares of Class A Stock were granted to two employees of Mutual.
The options were valued at fair market value at the date of acquisition.
The acquisition was funded as described in Note 1. The acquisition
agreement also contains a provision whereby a net working capital surplus
(as defined) will be distributed to the former owners within 45 days of the
closing date, this amount totals $436,228. The acquisition was accounted
for under the purchase method of accounting, accordingly the purchase price
was allocated to the assets acquired and liabilities assumed based on their
relative fair values at the date of acquisition. Equipment installed at
customer locations, classified as property and equipment by Mutual, is
classified as customer accounts by the Company, the net amount of
$3,132,229 for this property was reclassified accordingly.
(3) The excess of the cost over the fair value of the net assets acquired
equaled $1,989,598 and will be amortized on a straight-line basis over ten
years.
(4) Mutual had recorded a one-time bonus payment of $550,000 in fiscal year
ended December 31, 1997.
(5) Costs of acquiring customer contracts is amortized on a straight line basis
over ten years.
(6) Interest expense on the increased borrowings from Heller was assumed at an
average interest rate of 10% per annum. Interest expense, at 8.5% per
annum, was incurred on the cash portion of the acquisition (see Note 1)
from the effective date of the acquisition, February 1, 1998 through the
closing date of the acquisition, February 23, 1998.
(7) To fully provide for deferred tax liability on Mutual's books at January
31, 1998.
(8) Pro forma dividend on Preferred Stock.
<PAGE>
EXHIBITS
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4 Certificate of the Designations, Voting Powers, Preferences and
Relative, Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Preferred Stock of
Guardian International, Inc.
10(a) Stock Purchase Agreement dated as of February 23, 1998
10(b) Registration Rights Agreement dated as of February 23, 1998
10(c) Escrow and Pledge Agreement dated as of February 23, 1998
10(d) Employment Agreement with Joel A. Cohen dated as of February 1,
1998
10(e) Employment Agreement with Raymond L. Adams dated as of February 1,
1998
<PAGE>
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.
By: /S/ RICHARD GINSBURG
-----------------------------------------
Richard Ginsburg
President and Chief Executive Officer
