SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934(NO FEE REQUIRED)
Commission File Number 0-12873
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FIRECOM,INC.
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(Exact name of Small Business Issuer in its charter)
New York 13-2934531
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(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization)
39-27 59th Street, Woodside, New York 11377
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(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (718) 899-6100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Issuer's knowledge, in definitive
proxy or information statements by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB ( x )
State issuer's revenues for its most recent fiscal year-$14,884,000
The aggregate market value of the voting stock held by non-
affiliates of the Issuer, based upon the average bid and asked prices
for the Registrant's Common Stock, $.01 par value per share,
as of July 15, 1996 was $3,628,494.
As of July 15, 1996, the Registrant had 4,798,009 shares of
Common Stock outstanding.
Documents Incorporated by Reference: Definitive Proxy Statement
to be filed.
<PAGE>
PART I
Item 1. Business
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General.
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Firecom, Inc. (the "Company") was formed as a New York
corporation in March 1978 to acquire the business and operating assets
of Fire Controls, Inc and Commercial Radio-Sound Corp., which were
engaged in the design and manufacture of custom fire detection,
communications and control systems for commercial buildings and
commercial audio-visual systems. The acquisition was completed in May
1978.
Through its Fire Controls division, the Company designs,
manufactures and distributes, under the Firecom brand name, safety and
security systems for high rise office buildings, hotels, apartment
buildings and other large commercial buildings. This division also is
a distributor of Life Safety and other electronic building systems
manufactured by other companies. Subsidiaries handle the maintenance
of systems sold by the Company and others.
The Company's principal executive office is located at
39-27 59th Street, Woodside, New York 11377 and its telephone number
is (718) 899-6100.
Fire Alarm and Communications Systems
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The fire alarm and communication systems or "life safety
systems" designed, assembled and sold by the Company through its Fire
Controls division have the following functions: (i) sensing and
reporting fires, (ii) sounding alarms in the event of a fire, (iii)
notifying the Fire Department of a fire through a "central station"
connection, (iv) controlling basic building functions to prevent the
spread of fire and smoke, and (v) allowing building-wide communication
between fire fighters and building occupants. The Company designs
systems for both new and existing buildings. The Company assembles the
manual fire alarm station, floor warden stations, remote data gathering
panels and the main fire command station which is typically located in
the building's lobby. The Company purchases the sensing devices and
speakers used in the system from other manufacturers. Once the system
has been installed by independent electrical contractors, the Company
tests and services the system. Additionally, the life safety systems
have two auxiliary capabilities, energy management and security.
During the fiscal year ended April 30, 1996, revenues from
the sale of the fire alarm, communication systems and other building
systems constituted approximately 57% of the Company's consolidated
revenues.
Firecom 8500 Net System and Life Safety Net 2000 Systems
- ----------------------- --- ---- ------ --- ---- -------
The new Firecom 8500 Net and LSN 2000 systems integrate
addressable and intelligent fire alarm sensing devices such as smoke
detectors, manual fire alarm stations and sprinkler waterflow switches,
and displays the status of these devices. The Firecom 8500 Net and LSN
2000 Systems include a communication system consisting of amplifiers
and loudspeakers for sounding alarms and paging from either a floor
warden station or a fire command station. These newly designed fire
alarm and communication systems manufactured by Firecom will be
replacing the old 8500 Systems and are completely backward compatible,
as well as designed to meet the needs of the national market.
Other Fire Control and Communication Systems
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The Company designs, assembles and markets fire control
systems other than the Firecom 8500 System. The Company does not
manufacture the control unit for these systems. Additionally, the
Company distributes other electronic building systems and equipment
under OEM agreements for Uninterrupted Power Supplies.
Service
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The Company's life safety systems are covered by a one-year
warranty. The Company offers service contracts covering such systems
during and after the warranty period. Several other companies compete
with the Company for the servicing business. The Company's
subsidiaries handle maintenance services for the Company.
For the fiscal year ended April 30, 1996, revenues earned
from servicing systems constituted approximately 43% of the Company's
consolidated revenues.
Marketing
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The Company's fire alarm, communication and other building
systems are sold through an in-house sales and marketing department.
Much of the Company's new business arises because building owners,
electrical contractors and professional engineers in the New York City
area who are familiar with the Company generally include the Company on
project bidding lists.
Firecom will be marketing the LSN 2000 System in New York
City. This system represents the latest state-of-the-art available in
Life Safety. The Company will also be marketing the LSN 2000 through a
network of sales representatives and distributors throughout the
country.
The Company's service contracts are sold through an in-house
sales and marketing department.
Customers and Suppliers
- --------- --- ---------
The principal customers for the Company's fire alarm and
communications systems are electrical contractors who install such
systems and building owners.
The Company purchases parts for its systems from a variety of
suppliers. The Company believes that all such parts or alternate parts
are available from several sources and has not experienced any material
difficulty in obtaining supplies.
Regulations
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The Company believes that it currently complies with all
applicable building codes, zoning ordinances, occupational safety
and hazard standards and other applicable federal, state and local
ordinances and regulations.
Competition
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The Company's businesses are highly competitive, with the
price of products and warranty terms offered by competitors being
very similar to those of the Company. The Company believes that its
products perform as well or better than those of its competitors.
Some of the Company's competitors offer a broader line of products
and are better financed than the Company. Additionally, the Company
faces competition in the servicing of systems which the Company sells.
Patent and Trademarks
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The Company holds four patents on its fire alarm products.
One covers the parallel binary system and another upgrades the parallel
system to a serial system. The serial system collects data from all
sensors (emergency, energy or security) within the building,
continuously monitoring and recording the data on a hard copy printer.
The serial system could be used in facilities other than buildings,
including oil refineries, mining facilities and cable TV stations, for
site security, to prevent off-the-wire theft of services and to monitor
interruptions in service. In addition, the system can monitor
mechanical and electrical systems on board naval and merchant vessels.
The third patent on the Company's multiplex system covers an integrated
alarm, security building management and communication system. This
integrated system provides voice communication to all emergency areas,
monitors all fire alarms, security functions--such as card access, door
control, intrusion and surveillance--and controls all lights, pumps and
other building functions.
The Company has received issuance by the United States Patent
and Trademark Office of its fourth patent for a mechanical device
called PULLplus. Currently, most alarm pull stations are mounted 60 to
64 inches above the finished floor. However, new Federal government
regulations under The Americans with Disabilities Act, enacted in 1990,
requires that manual stations for fire alarms must be mounted so that
the pull handle is no greater than 48 inches from the finished floor.
PULLplus is an economical, easy to install mechanical add-on that
lowers the height at which existing alarm pull stations can be
actuated. The Company has several trademarks, including the name
"Firecom", that are registered with the United States Patent and
Trademark Office.
Employees
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As of July 15, 1996 Firecom, Fire Service, Inc. and FRCM
Case-Acme, Inc. have approximately 121 full-time employees, 31 of whom
are salaried and 90 of whom are paid on an hourly basis. All employees
are located in the Woodside, New York facility. The Company believes
its relationship with its employees is satisfactory and has not
experienced work stoppages of a material nature.
Backlog
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As of April 30, 1996 the Company had a backlog for fire control and
other systems of approximately $3,178,000, substantially all of which
it anticipates completing in the current fiscal year. The backlog at
April 30, 1995 was approximately $3,205,000.
Item 2. Property
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The Company owns property and a building in Woodside, New
York where it maintains manufacturing, sales, service and engineering
operations. The two story building is fire resistant and approximately
16,000 square feet. The underlying property is approximately one
acre. The building is subject to a mortgage note in the outstanding
principal amount of $429,000 bearing interest at 10.2% per annum,
maturing July 8, 1999.
As a result of the accounting treatment of the original
bargain purchase of the Company, the value of the building and property
is not reflected on the Company's Balance Sheet. A 1994 independent
appraisal indicates a current value of the property of approximately
$650,000.
The Company leases a 5000 square foot building in Woodside,
New York, which it utilizes for additional warehouse space under a
lease which expired March 31, 1996 at an annual average rent of
$28,936. This lease is being continued on a month-to-month basis while
a new lease is being negotiated. The Company also leases 1000 square
feet of additional space in Woodside, New York under a lease expiring
March 31, 1997 at an average annual rent of $9,600.
Item 3. Legal Proceedings
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In the normal course of its operations, the Company has been
named in various legal actions seeking monetary damages. While the
outcome of some of these matters cannot be estimated with certainty,
management does not expect, based upon consultation with legal counsel,
that they will have a material effect on the Company's business.
Item 4. Submission of Matters to a Vote of Security Holders.
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None
<PAGE>
PART II
Item 5. Market for the Company's Common Stock and Related Security
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Holder Matters
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(a) The Company's Common Stock is traded in the over-the-
counter market. The following table shows the high and low bid
quotations for the Company's Common Stock for the quarters indicated.
Closing Bid
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High Low
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Fiscal 1995:
First quarter $ 11/16 $ 17/32
Second quarter 23/32 11/16
Third quarter 7/10 23/32
Fourth quarter 23/32 9/16
Fiscal 1996:
First quarter $11/16 $ 17/32
Second quarter 23/32 11/16
Third quarter 7/10 23/32
Fourth quarter 23/32 9/16
The above information was obtained from stock brokers and
represent prices between dealers and do not include retail markups,
markdowns or commissions and may not necessarily represent actual
transactions.
(b) As of July 15, 1996, there were 369 record holders
of the Company's Common Stock. The closing bid and asked prices for
the Company's Common Stock on July 12, 1996 were 7/10 and 13/16
respectively.
(c) The Company has not paid any cash dividends on its
common stock to date, and the payment of cash dividends in the
foreseeable future is not contemplated by the Company. The Company's
loan agreements prevent it from paying dividends. Future dividend
policy will depend on the Company's earnings, capital requirements,
financial condition and other factors considered relevant by the
Company's Board of Directors. No dividends can be paid on the common
stock while there is any arrearage on the payment of dividends on the
preferred stock.(arrearage was $747,000 at April 30, 1996.)
Item 6. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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Results of Operations
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The following table sets forth items in the Consolidated
Statements of Income as a percentage of sales:
Relationship to Net Sales
For the Years Ended April 30,
-----------------------------
1996 1995
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Net Sales 100.0% 100.0%
Cost of Sales 51.8 54.2
Selling, General and
Administrative Expenses 24.1 22.5
Research & Development 3.6 3.0
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Operating Income 20.5 20.3
Other Income (Expense) (0.6) (1.4)
Income Tax Expense(Credit) 9.4 5.5
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Net Income 10.5 13.4
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1996 Fiscal Year Compared to 1995 Fiscal Year
- ---------------------------------------------
Consolidated sales for the Company's operations increased
by approximately 6%. Sales for the Fire Controls division, which sells
life safety and other electronic systems for high rise buildings, were
4% greater than the prior year. The Company's Fire Service, Inc.
subsidiary recorded a 14% increase while revenues for its FRCM Case-
Acme, Inc. subsidiary declined approximately 1%. Fire Controls
generated 48.5% of total revenues, Fire Service 30.6% and FRCM Case-
Acme 20.9%.
The increase in revenues for the Fire Controls division
reflects the changing nature of the New York City market place. This
resulted in contracts for new systems in existing buildings together
with increased demand for upgrades and renovations to existing
buildings to bring them into conformity with New York City building
codes. The increase for the Fire Service, Inc. subsidiary, which
services systems sold by the Fire Controls division resulted from new
or expanded contracts and contract price increases. The FRCM Case-
Acme, Inc. subsidiary revenues include upgrades and renovations to
existing Case-Acme systems together with service contract revenues on
these systems.
The Fire Controls division backlog for its Life Safety and
other systems totaled $2,839,000 at April 30, 1996, an increase of
$47,000 from the backlog of April 30, 1995. FRCM Case-Acme had a
backlog of approximately $339,000 for additions and retrofits to its
systems at April 30, 1996 a decrease of $75,000 from the backlog of
April 30, 1995. Despite the poor economic conditions and the highly
competitive nature of the New York City market, the demand for the
Company's systems, especially in the retrofit market, and for its
maintenance services remains steady.
Selling, general and administrative expenses for the year
ended April 30, 1996 increased approximately $422,000 as compared to
the year ended April 30, 1995. Increases in staff, payrolls and bad
debt provisions, together with approximately $150,000 in advertising
and literature costs aimed at the national market are the primary
causes of this increase.
Research and development costs were $531,000 for the year
ended April 30, 1996 as compared to $432,000 in the year ended April
30, 1995. These expenditures reflect the Company's commitment to be
able to provide its current and future customers with the latest state-
of-the-art fire and life safety systems.
Operating income for the 1996 fiscal year was $3,051,000 as
compared to $2,856,000 for fiscal 1995. The increase in operating
income for fiscal 1996 of 6.8% over fiscal 1995 resulted primarily
from an increase in revenues of $795,000 together with a gross profit
of 48.2% as compared to 45.8% for the year ended April 30, 1995. The
increase in profitability resulted from a combination of increased
sales of the higher margin upgrades and continuing cost control
programs.
Significant changes in balance sheet items from April 30,
1995 to April 30, 1996 are highlighted as follows:
1: Accounts receivable increased at approximately the same
rate as revenues, 6%, reflecting continued strong
collection efforts. Management believes that reserves for
doubtful accounts are adequate to cover anticipated losses
in collection.
2: Inventories were $252,000 or 28% higher at April 30, 1996
than at April 30, 1995, reflecting material requirements
for jobs currently in progress.
3: The increase in Property, plant and equipment and Other
assets reflect the acquisition of equipment.
5: The decrease in debt resulted from scheduled payments and
reductions in the amount of the revolving line-of-credit
outstanding.
6: Equity changes resulted from purchase of treasury shares
and an agreement to redeem additional shares as detailed
in the discussuion on liquidity. Other changes resulted
from the exercise of warrants.
Interest expense for fiscal 1996 was approximately $115,000,
39% less than fiscal 1995. This resulted from the refinancing of the
Company's bank loans in July, 1994 at lower interest rates and the
reduction in outstanding debt.
See Part I, item 3: Legal Proceedings for discussion as to the
Company's legal costs.
Liquidity
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Net cash provided from operations was $1,505,000. Funds used
for the repayment of debt($791,000), net common stock transactions
($158,000) and toward capital expenditures expenditures($95,000)
resulted in a net increase in cash of $461,000. The Company's
financing agreement with a major New York bank, dated July 8, 1994, was
amended on April 1, 1996. As a result of the amendment, the Company has
a revolving line of credit not to exceed $2,000,000 (there was no
outstanding balance at April 30, 1996) and a first mortgage note of
$429,000 at April 30, 1996. These notes are collateralized by all of
the Company's assets and are subject to certain covenants. In
addition, the notes restrict the payment of common stock dividends at
any time and the payment of preferred dividends until April 1, 1999.
As of April 30, 1996, preferred dividends in arrears were approximately
$747,000.
Availability under the terms of the revolver is based on
eligible accounts receivable and inventory. The initial commitment for
$2,000,000 under the terms of the revolving note is reduced by $500,000
each six months commencing October 1, 1999. There were no borrowings
against the revolving loan as of April 30, 1996.
During the fiscal year ending April 30, 1997 ("Fiscal 1997"),
the Company intends to spend approximately $565,000 on research to
develop new fire alarm and communication systems. These R & D
expenditures will be financed from the Company's working capital.
On June 21, 1995, the Company signed a Stock Purchase
Agreement to purchase 536,494 shares of the Company's $.01 par Value
Common Stock held by certain members of the May family (the
"Shareholders") at $.90 per share. Terms of the agreement provide for
a cash payment in the amount of $174,448.20 and a five (5) year note in
the amount of $308,396.40, bearing interest at 12% per annum. Interest
is to be paid monthly. The principal is to be paid in five equal
annual installments of $61,679.28. The Company's obligation under the
note is to be secured by a pledge by the Company to the noteholder of
342,663 shares of the Company's Common Stock.
At the same time, the Company and the Shareholders entered
into an Option and Escrow Agreement relative to an additional 536,494
shares of the Company's Common Stock (the "Option Shares"). Under the
terms of this agreement, on September 1, 1998 each Shareholder has the
right, but not the obligation, to require the Company to purchase, in
whole or in part, his Option Shares (the "Put Option") at a price of
$1.10 per share. The Put Option is conditional upon the Company meeting
certain financial targets. At any time under this agreement, the
Company shall have the right, but not the obligation, to purchase all
of the Option Shares, in whole or in part(the "Call Option") at a
purchase price of $1.25 per share. Payment for the Option Shares upon
exercise of the Put or Call Option shall be one-half (1/2) in cash and
one-half (1/2) with a five (5) year note bearing interest at prime plus
3%. The notes issued upon purchase of the Option Shares will be secured
by a pledge by the Company of shares of its Common Stock. Upon final
execution of this agreement, the Shareholders will deliver to the
Company irrevocable proxies to permit Mr. Paul Mendez, Chairman of the
Company, to vote the Option Shares until the expiration of this
agreement.
The Company's working capital was approximately $5,698,000
at April 30, 1996. Management believes that it will be able to
maintain adequate working capital and cash balances to meet the needs
of the Company.
Inflation
- ---------
The impact of inflation on the Company's contracts is not
material since the Company's labor contracts are normally controlled by
union contracts covering a period of two or more years.
Item 7. Financial Statements
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The consolidated financial statements required to be filed
hereunder are indexed at Page F-1 and are incorporated herein by
reference.
Item 8. Changes in and Disagreements with Accountants
- ------- ---------------------------------------------
In connection with the audit of the two most recent
fiscal years and any subsequent interim period, there were no
disagreements with Rothstein, Kass & Company, P.C. on any matter of
accounting principles or practices, financial statement disclosure or
auditing scope or procedure.
PART III
Incorporated by reference to Registrant's definitive Proxy
Statement.
<PAGE>
Item 14. Exhibits and Reports on Form 8-K
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(a) Exhibits
3(a) Certificate of Incorporation of the Company filed March
16, 1978. [incorporated by reference to Exhibit 3(a)
to the Company's Registration Statement on Form S-18
(Commission File No.2-87583-NY), filed on October 31,
1983].
3(b) Certificate of Amendment to the Certificate of
Incorporation of the Company filed December 6, 1979
[incorporated by reference to Exhibit 3(b) to the
Company's Registration Statement on Form S-18 (Commission
File No. 2-87583-NY), filed on October 31, 1983].
3(c) Certificate of Amendment to the Certificate of
Incorporation of the Company filed December 31, 1980
[incorporated by reference to Exhibit 3(c) to the
Company's Registration Statement on Form S-18 (Commission
File No. 2-87583-NY), filed on October 31, 1983].
3(d) Certificate of Amendment to the Certificate of
Incorporation of the Company filed April 23, 1981
[incorporated by reference to Exhibit 3(d) to the
Company's Registration Statement on Form S-18 (Commission
File No. 2-87583-NY), filed on October 31, 1983].
3(e) Certificate of Amendment to the Certificate of
Incorporation of the Company filed August 12, 1983
[incorporating by reference to Exhibit 3(e) to the
Company's Registration Statement on Form S-18 (Commission
File No. 2-87583-NY), filed on October 31, 1983].
3(f) Certificate of Amendment to the Certificate of
Incorporation of the Company filed February 4, 1985
[incorporated by reference to Exhibit 3(f) to the
Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 1985].
3(g) Certificate of Amendment of the Certificate of
Incorporation of the Company filed August 4, 1986 stating
the Designation and Preference of the Company's Series A
Preferred Stock [incorporated by reference to Exhibit
3(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1987].
3(h) Certificate of Amendment of the Certificate of
Incorporation of the Company filed March 1987,
limiting the director's liability in certain
circumstances [incorporated by reference to Exhibit 3(j)
to the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1988].
3(i) Certificate of Amendment of the Certificate of
Incorporation of the Company filed June 5, 1991,
changing the Designation and Preference of the Company's
Series A Preferred Stock [incorporated by reference to
Exhibit 3(i) to the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 1991].
3(j) Certificate of Amendment to the Certificate of
Incorporation ratified and adopted April 1, 1993
(incorporated by reference to Exhibit A to the Company's
Proxy Statement for the Annual Meeting of Shareholders
held on April 1, 1993)
3(k) By-laws of the Company(incorporated by reference
to Exhibit 3(f) to the Company's Registration Statement
on Form S-18 (Commission File No. 2-87583-NY), filed on
October 31, 1983].
3(l) Amendment to the By-laws of the Company approved and
adopted by the Company's Board of Directors on May 13,
1987 [incorporated by reference to Exhibit 3(i) to the
Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 1987].
3(m) Amendment to the By-laws of the Company approved and
adopted by the Company's Board of Directors on May 2,
1991 [incorporated by reference to Exhibit 3.1 to the
Company's Report on Form 8-K dated May 3, 1991].
4(a) Form of Common Stock Certificate [incorporated by
reference to Exhibit 4 to Amendment No. 2 to the
Company's Registration Statement on Form S-18 (Commission
File No. 2-87583-NY) filed on January 16, 1984].
4(b) Warrant dated July 31, 1986 entitling Mobex Corporation
(transferred to Jindas B. Shah on June 1, 1990 and
transferred to Firecom Holdings, L.P. on July 18, 1991)
to purchase 500,000 shares of the Company's Common Stock
[incorporated by reference to Exhibit C to Exhibit 1 to
the Company's Report on Form 8-K dated August 14, 1986]
as amended by the Modification Agreement dated March 24,
1989, by and among Mobex Corporation, the Company and
Fire Service, Inc. [incorporated by reference to Exhibit
10.2 to the Company's Report on Form 8-K dated April 11,
1989].
4(c) Registration Rights Agreement dated July 31, 1986,
between Mobex Corporation and the Company (assigned to
Jindas B. Shah June 1, 1990 and assigned to Firecom
Holdings L.P. on July 18, 1991) [incorporated by
reference to Exhibit 2 to the Company's Report on Form 8-
K dated August 14, 1986].
9 Voting Trust Agreement dated July 31, 1986 between Mobex
Corporation, as trustor and Gregory Katz, as trustee
(transferred to Firecom Holdings, L.P. on July 18, 1991)
[incorporated by reference to Exhibit 3 to the Company's
Report on Form 8-K dated August 14, 1986].
10(a) Employment Agreement dated as of May 24, 1991 between the
Company and Howard Kogen.(incorporated by reference to
the Company's Report on Form 10K for the year ended April
30, 1991)
10(b) Employment Agreement dated as of May 24, 1991 between the
Company and Antoine P. Sayour.(incorporated by reference
to the Company's Report on Form 10K for the year ended
April 30, 1991)
10(c) Employment Agreement dated as of December 31, 1992 with
Paul Mendez, and Amendment thereto dated March 28, 1995
[incorporated by reference to Exhibit 10(c) to the Company's
Report of Form 10K for the year ended April 30, 1995].
10(d) Stock Appreciation Rights Agreement dated as of December
31, 1992 with Paul Mendez [incorporated by reference to
Exhibit 10(d) to the Company's Report on Form 10K for the
year ended April 30, 1993].
10(e) Company's 1986 Non-Qualified Stock Option Plan
[incorporated by reference to Exhibit A to the
Company's Proxy Statement for the Annual Meeting
of Shareholders dated January 5, 1987].
10(f) Note Purchase Agreement dated as of March 27, 1989
among the Company, Fire Service, Inc., Norwood Venture
Corp. and Jonathan Ingham [incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 8-K dated
April 11, 1989].
10(g) Modification Agreement dated as of March 24, 1989 by
and among Mobex Corporation, the Company and Fire
Service, Inc. [incorporated by reference to Exhibit 10.2
to the Company's on Form 8-K dated April 11, 1989].
10(h) Modification Agreement dated as of May 31, 1991 by and
between Jindas B. Shah and the Company (assigned to
Firecom Holdings, L.P. on July 18, 1991) [incorporated
by reference to Exhibit 10(g) to the Company's Report
on Form 10K for year the ended April 30, 1991].
10(i) Asset Purchase Agreement dated as of May 24, 1993 with
Case Acme Inc. [incorporated by reference to Exhibit
10(i) to the Company's Report on Form 10K for the year
ended April 30, 1993].
10(j) Employment Agreement dated May 1, 1994 between the
Company and Howard Kogen [incorporated by reference
to Exhibit 10(j) to the Company's Report on Form
10K for the year ended April 30, 1994].
10(k) Employment Agreement dated May 1, 1994 between the
Company and Antoine P. Sayour [incorporated by
reference to Exhibit 10(k) to the Company's Report
on Form 10K for the year ended April 30, 1994].
10(l) Stock Purchase Agreement dated June 21, 1995 between the
Company and Helen May, etal [incorporated by reference
to Exhibit 10(l) to the Company's Report on Form 10K for
the year ended April 30, 1995].
10(m) Option and Escrow Agreement dated July 14, 1995 between
the Company and Helen May, etal [incorporated by reference
to Exhibit 10(m) to the Company's Report on Form 10K for
the year ended April 30, 1995].
22 Subsidiaries of the Company [incorporated by reference to
Exhibit 22 to the Company's Report on Form 10K for the
year ended April 30, 1993].
(b) Reports on Form 8-K- None
---------
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
APRIL 30, 1996
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONTENTS
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENTS OF INCOME F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 - F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-15
<PAGE>
280 Corporate Center
85 Livingston Avenue, Roseland, New Jersey 07068-1785
(201) 994-6666/ (212) 490-7700/ FAX (201) 994-0337
------------------------------------------ROTHSTEIN, KASS & COMPANY, P.C.
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Firecom, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Firecom,
Inc. and Subsidiaries as of April 30, 1996 and the related consolidated
statements of income, stockholders' equity and cash flows for the years
ended April 30, 1996 and 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
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 audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Firecom, Inc. and Subsidiaries at April 30, 1996, and the
consolidated results of their operations and their cash flows for the years
ended April 30, 1996 and 1995 in conformity with generally accepted
accounting principles.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
June 7, 1996
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,165,000
Accounts receivable, net of allowance for
doubtful accounts of $319,000 3,717,000
Inventories 1,152,000
Deferred tax assets 438,000
Prepaid expenses and other 11,000
-----------
Total current assets $ 7,483,000
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $588,000 476,000
OTHER ASSETS:
Product enhancement costs, less accumulated
amortization of $383,000 125,000
Prepaid loan fees 32,000
-----------
157,000
-----------
$ 8,116,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 113,000
Accounts payable 506,000
Accrued expenses and other 963,000
Income taxes payable 203,000
-----------
Total current liabilities $ 1,785,000
LONG-TERM LIABILITIES:
Notes payable 624,000
Accrued compensation 104,000
Deferred tax liability 63,000
-----------
Total long-term liabilities 791,000
MANDATORY REDEEMABLE COMMON STOCK 590,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1,
authorized 1,000,000 shares, none issued
Series A preferred stock, stated value
$1,197.50, authorized, issued and outstanding
1,200 shares 1,437,000
Common stock, par value $.01,
authorized 10,000,000 shares,
issued 5,162,339, outstanding 4,714,676 52,000
Capital in excess of par value 1,593,000
Retained earnings 2,278,000
-----------
5,360,000
Less treasury stock, at cost, 447,663 shares 410,000
-----------
Total stockholders' equity 4,950,000
-----------
$ 8,116,000
===========
See accompanying notes to consolidated financial statements.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended April 30, 1996 and 1995
1996 1995
------------ ------------
NET SALES:
Product $ 8,530,000 $ 8,297,000
Services 6,354,000 5,792,000
------------ ------------
14,884,000 14,089,000
------------ ------------
COST OF SALES:
Product 4,698,000 4,775,000
Services 3,015,000 2,859,000
------------ ------------
7,713,000 7,634,000
------------ ------------
GROSS PROFIT 7,171,000 6,455,000
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 3,589,000 3,167,000
Research and development 531,000 432,000
------------ ------------
Total operating expenses 4,120,000 3,599,000
------------ ------------
INCOME FROM OPERATIONS 3,051,000 2,856,000
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 30,000 -
Interest expense (115,000) (190,000)
------------ ------------
(85,000) (190,000)
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 2,966,000 2,666,000
INCOME TAX EXPENSE 1,404,000 775,000
------------ ------------
NET INCOME $ 1,562,000 $ 1,891,000
============ ============
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS
Primary and fully diluted $ 1,463,000 $ 1,762,000
============ ============
NET INCOME PER COMMON SHARE
Primary and fully diluted $ .25 $ .30
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES USED IN
COMPUTING EARNINGS PER SHARE
Primary 5,801,000 5,817,000
============ ============
Fully-diluted 5,960,000 5,862,000
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended April 30, 1996 and 1995
Series A
Preferred
Stock Common Stock Capital in
--------------- ---------------- Excess of
Shares Amount Shares Amount Par Value
------ ------ ------ ------ ---------
BALANCES,
April 30, 1994 1,200 $1,437,000 5,031,038 $50,000 $2,242,000
NET INCOME
----- ---------- --------- ------- ----------
BALANCES,
April 30, 1995 1,200 1,437,000 5,031,038 50,000 2,242,000
PURCHASE OF TREASURY
STOCK
ISSUANCE OF PUT OPTION (590,000)
RETIREMENT OF TREASURY
STOCK (202,031) (2,000) (172,000)
WARRANTS EXERCISED 333,332 4,000 113,000
NET INCOME
----- ---------- --------- ------- ----------
BALANCES,
April 30, 1996 1,200 $1,437,000 5,162,339 $52,000 $1,593,000
===== ========== ========= ======= ==========
Retained
Earnings
(Accumu- Treasury Stock
lated -----------------
Deficit) Shares Amount Total
--------- ------ ------ ----------
BALANCES,
April 30, 1994 $(1,175,000) 13,000 $ (1,000) $2,553,000
1,891,000 1,891,000
NET INCOME ----------- ------- --------- ----------
BALANCES,
April 30, 1995 716,000 13,000 (1,000) 4,444,000
PURCHASE OF TREASURY
STOCK 636,694 (583,000) (583,000)
ISSUANCE OF PUT OPTION (590,000)
RETIREMENT OF TREASURY
STOCK (202,031) 174,000 -
WARRANTS EXERCISED 117,000
NET INCOME 1,562,000 1,562,000
----------- ------- --------- ----------
BALANCES,
April 30, 1996 $ 2,278,000 447,663 $(410,000) $4,950,000
=========== ======= ========= ==========
See accompanying notes to consolidated financial statements.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Years Ended April 30, 1996 and 1995
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,562,000 $ 1,891,000
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 132,000 137,000
Provision for doubtful accounts 259,000 222,000
Amortization of loan fees 10,000 8,000
Deferred income tax expense (credit) (30,000) 178,000
Changes in operating assets and liabilities:
Increase in accounts receivable (482,000) (350,000)
Decrease (increase) in inventories (252,000) 186,000
Decrease (increase) in prepaid expenses and
other 46,000 (38,000)
Increase (decrease) in accounts payable 55,000 (174,000)
Increase (decrease) in accrued expenses and
other (5,000) 128,000
Increase (decrease) in income taxes payable 190,000 (26,000)
Increase (decrease) in accrued compensation 20,000 (9,000)
----------- -----------
Total adjustments (57,000) 262,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,505,000 2,153,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITY, acquisition of
property, plant and equipment (95,000) (37,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for loan fees (30,000)
Repayment of notes payable (791,000) (1,072,000)
Proceeds from the sale of common stock 117,000
Payments for the purchase of treasury stock (275,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (949,000) (1,102,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 461,000 1,014,000
CASH AND CASH EQUIVALENTS:
Beginning of year 1,704,000 690,000
----------- -----------
End of year $ 2,165,000 $ 1,704,000
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
Years Ended April 30, 1996 and 1995
1996 1995
----------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the year $ 119,000 $ 190,000
=========== =========
Cash paid for income taxes during the year $ 1,244,000 $ 623,000
=========== =========
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITY;
note payable issued for the purchase of
treasury stock $ 308,000 $ -
=========== =========
See accompanying notes to consolidated financial statement.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
NATURE OF BUSINESS - Firecom, Inc. and Subsidiaries (the
"Company") operate in the building products industry including
the design, manufacture and service of fire safety systems and
products. The company sells its products and services to a
variety of end users (i.e., building owners and managers) and
contractors, primarily in the New York metropolitan area. None
of the Company's customers exceed 10% of consolidated net sales.
A majority of the Company's employees are employed under a union
contract.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of Firecom, Inc. and its wholly-
owned subsidiaries, Fire Service, Inc. and FRCM Case-Acme, Inc.
All intercompany balances and transactions have been eliminated
in consolidation.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of the
Company's assets and liabilities, which qualify as financial
instruments under Statement of Financial Accounting Standards No.
107 (SFAS 107), "Disclosures about Fair Value of Financial
Instruments," approximates the carrying amounts presented in the
balance sheet.
CASH EQUIVALENTS - Cash equivalents include all highly liquid
instruments having a maturity of less than three months from the
purchase date. Cash equivalents include Certificates of Deposit.
INVENTORIES - Inventories, which include material, labor and
overhead costs, are stated at the lower of cost or market, with
cost determined on the first-in, first-out (FIFO) method.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically
assesses the recoverability of the carrying amounts of long-lived
assets, including intangible assets. A loss is recognized when
expected undiscounted future cash flows are less than the
carrying amount of the asset. The impairment loss is the
difference by which the carrying amount of the asset exceeds its
fair value.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost and are being depreciated using the straight-line
method over the estimated useful lives of the assets ranging from
5 to 15 years.
OTHER ASSETS - Product enhancement costs are amortized using the
straight-line method over five years.
INCOME TAXES - The Company complies with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes," which requires an asset and liability approach to
financial reporting of income taxes. Deferred income tax assets
and liabilities are computed annually for differences between
financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future, based
on enacted tax laws and rates applicable to the periods in which
the differences are expected to effect taxable income. Valuation
allowances are established, when necessary, to reduce the
deferred income tax assets to the amount to be realized.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
REVENUE RECOGNITION - Revenues related to manufacturing
operations are recognized when goods are shipped. Revenues
related to service contracts are recognized on a straight-line
basis over the contract period.
The Company uses the percentage-of-completion method of
accounting to determine income on its fire safety installation
contracts. The percentage-of-completion is determined by
relating the total costs incurred to date to management's
estimate of total contract costs. Revisions in estimates and
projected losses on contracts are recognized in the period when
they become known.
NET INCOME PER COMMON SHARE - Net income per common share is
computed based on net income applicable to common shareholders
divided by the weighted average number of common and common
equivalent shares outstanding. Net income applicable to common
shareholders is computed by reducing net income for preferred
stock dividends and adjusting interest as a result of applying
the Modified Treasury Stock Method. Common equivalent shares
include shares issuable upon exercise of outstanding stock
options and warrants, net of shares assumed to have been
purchased with the resultant proceeds, if dilutive. Fully-
diluted weighted average number of shares outstanding assumes
shares issued from the exercise of stock options and warrants to
have been outstanding for the full year. For the year ended
April 30, 1995, both net income and weighted average number of
shares outstanding are adjusted to assume the maximum conversion
of convertible promissory notes.
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.
NOTE 2 - INVENTORIES:
Inventories consist of the following at April 30, 1996:
Raw materials and sub-assemblies $1,051,000
Work-in-process 101,000
----------
$1,152,000
==========
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following at April 30,
1996:
Building improvements $ 254,000
Machinery and equipment 558,000
Furniture and fixtures 252,000
----------
1,064,000
Less accumulated depreciation
and amortization 588,000
----------
$ 476,000
==========
During the year ended April 30, 1996, property, plant and
equipment, which was fully depreciated in the amount of $115,000,
was abandoned.
NOTE 4 - ACCRUED EXPENSES AND OTHER:
Accrued expenses and other consist of the following at April 30,
1996:
Professional fees $ 28,000
Vacation 179,000
Incentive compensation 333,000
Payroll 138,000
Fringe benefits 90,000
Deferred revenues 36,000
Sales tax 70,000
Warranty 41,000
Other 48,000
---------
$ 963,000
=========
NOTE 5 - NOTES PAYABLE:
Notes payable consist of the following at April 30, 1996:
Interest
Rate
----
Note payable to May Family, pursuant
to Stock Purchase Agreement, (See
Note 8) in annual installments of
$61,679, plus interest, through June
21, 2000. 12.0% $ 308,000
First mortgage note payable in monthly
installments of $4,333, plus 429,000
interest, through July 8, 1999. 10.2% ---------
737,000
Less current portion 113,000
---------
$ 624,000
=========
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE (CONTINUED):
At April 30, 1996, the Company had an unused line of credit of
up to $2,000,000 which expires in July 1999.
Aggregate future principal payments are as follows:
Year ending April 30:
1997 $ 113,000
1998 114,000
1999 114,000
2000 335,000
2001 61,000
-----------
$ 737,000
===========
At April 30, 1996, the prime interest rate was 8.25%.
NOTE 6 - STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS:
STOCK OPTIONS - On January 27, 1987, the shareholders of the
Company approved the adoption of a stock option plan (the
"Plan"), which expires April 30, 2001, to replace the existing
incentive stock option plan (the "Old Plan"). The Plan had
350,000 shares of common stock reserved for issuance. On
September 29, 1994, the Plan was amended to increase the common
stock reserved for issuance to 600,000 shares. Participants who
held stock options under the Old Plan surrendered such options
in exchange for an equal number of options under the Plan. The
exercise price of options granted under the Plan shall not be
less than 85% of the fair market value of the shares at the date
of grant. Information relating to the stock options under the
Plan during the years ended April 30, 1996 and 1995 is as
follows:
Number Per Share
of Shares Option Price
--------- ------------
Outstanding at April 30, 1994 263,270 $ .30-.58
Granted 238,400 .60
Expired (3,000) .30
--------- ----------
Outstanding at April 30, 1995 498,670 .30-.60
Expired (3,000) .30
--------- ----------
Outstanding at April 30, 1996 495,670 $ .30-.60
========= ==========
Exercisable at April 30, 1996 304,950 $ .30-.60
========= ==========
The exercise price of the above options approximated or exceeded
fair market value at the date of grant.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS
(CONTINUED):
STOCK APPRECIATION RIGHTS - The Company has stock appreciation
rights agreements (SARs) with certain stockholders which grants
them the right to receive in cash the excess of the fair market
value (FMV) of a common share over the base prices (as defined in
the agreements). The following summarizes the SARs at April 30,
1996:
Rights Rights Base
Granted Exercisable Price FMV
------- ----------- ----- ---
100,000 100,000 $ .28125 $.68750
(A) 200,000 120,000 .2500 .68750
(A) 100,000 60,000 .5000 .68750
(A) 100,000 60,000 1.0000 .68750
(A) 100,000 60,000 1.5000 .68750
(A) These rights have been granted pursuant to an agreement with the
Chairman of the Company and are exercisable in pro-rata
installments over a five year period. In February 1994, the
agreement was amended whereby if any rights are exercised, no
cash payment would be made prior to May 1, 1996. All unexercised
rights will expire December 2002.
Selling, general and administrative expenses include a charge of
approximately $29,000 for the year ended April 30, 1996 and a credit
of approximately $9,000 for the year ended April 30, 1995 for
compensation as a result of the SARs. At April 30, 1996, no rights
have been exercised pursuant to the agreements. At April 30, 1996,
the Company has accrued compensation of approximately $104,000 as a
result of the SARS.
WARRANTS - In 1987, in connection with the acquisition of its
discontinued Auth Division, the Company issued warrants to purchase
500,000 shares of the Company's common stock with an exercise price,
as amended, of $1.20 per share. The warrants are exercisable
beginning July 31, 1987 for a period of ten years. Upon redemption of
the Series A preferred stock (See Note 7) by the Company, a
proportionate amount of the warrants terminate.
As a result of repaying the convertible notes on July 8, 1994, the
rights to purchase 1,333,333 shares of common stock were converted
into warrants with an exercise price of $.35 per share. The warrants
are exercisable immediately with 83,333 shares expiring quarterly
beginning June 1995 through March 1999. As of April 30, 1996, 333,332
shares were exercised.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - SERIES A PREFERRED STOCK:
The Company issued Series A preferred stock which is redeemable at its
option for $1,197.50 per share plus dividends accrued as outlined
below from and after May 1, 1990.
Dividends are cumulative and accrue as follows:
Amount of
Dividend Per Share Period
------------------ ------
$ 50.00 August 1, 1986 - July 31, 1988
$ 70.00 August 1, 1988 - July 31, 1990
$ 90.00 August 1, 1990 - May 31, 1991
$ 107.75 Annually beginning June 1, 1991
As of April 30, 1996, dividends in arrears were approximately $747,000
and payment is restricted until April 1999 under the notes payable.
NOTE 8 - COMMON STOCK:
On June 21, 1995, the Company signed a Stock Purchase Agreement
to purchase 536,494 shares of the Company's $.01 par value common
stock held by certain members of the May family (the
"shareholders") at $.90 per share. Terms of the agreement
provide for a cash payment in the amount of $174,448 and a five
(5) year note in the amount of $308,397, bearing interest at 12%
per annum. Interest is to be paid monthly. The principal is to
be paid in five equal annual installments of $61,679. The
Company's obligation under the note is to be secured by a pledge
by the Company to the noteholder of 342,663 shares of the
Company's common stock.
At the same time, the Company and the Shareholders entered into
an Option and Escrow Agreement relative to an additional 536,494
shares of the Company's common stock (the "Option Shares").
Under the terms of this agreement, on September 1, 1998 the
Shareholders have the right, but not the obligation, to require
the Company to purchase, in whole or in part, their Option Shares
(the "Put Option") at a price of $1.10 per share. The Put Option
is conditional upon the Company meeting certain financial
targets. At any time under this agreement, the Company shall
have the right, but not the obligation, to purchase all of the
Option Shares, in whole or in part (the "Call Option") at a
purchase price of $1.25 per share. Payment for the Put Option or
the Call Option shall be one-half (1/2) in cash and one-half
(1/2) with a five (5) year note bearing interest at prime plus
3%. Upon final execution of this agreement, the Shareholders
will deliver to the Company irrevocable proxies to permit Mr.
Paul Mendez, Chairman of the Company, to vote the Option Shares
until the expiration of this agreement.
During the year ended April 30, 1996, the Company issued 333,332
shares of its common stock upon the exercise of warrants (See
Note 6) with approximate proceeds to the Company of $117,000.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - PENSION PLAN CONTRIBUTIONS:
The Company makes contributions to a union-sponsored multi-
employer defined contribution pension plan based on the
wages paid to union employees covered under union contracts.
Contributions to the multi-employer plan amounted to
approximately $74,000 and $66,000 in 1996 and 1995,
respectively. The Company has no intention of withdrawing
from the plan, nor has the Company been informed that there
is any intention to terminate the plan.
NOTE 10 - INCOME TAXES:
The provision for income taxes in the accompanying
consolidated statements of income consists of the following:
Year Ended April 30,
--------------------------
1996 1995
----------- ---------
Current:
Federal $ 854,000 $ 385,000
State and City 580,000 212,000
----------- ---------
1,434,000 597,000
----------- ---------
Deferred:
Federal (19,000) 148,000
State and City (11,000) 30,000
----------- ---------
(30,000) 178,000
----------- ---------
Total $ 1,404,000 $ 775,000
=========== =========
The following reconciles the computed income tax expense at the
Federal statutory rate to the actual provision for income taxes:
1996 1995
------ ------
Computed tax expense at Federal statutory rate 35 % 35 %
State and city provision, net of Federal tax 13 13
Net operating loss carryforwards and tax credits (4)
Other (1) (3)
Change in valuation allowance (12)
------ ------
47 % 29 %
====== ======
As a result of the current year operating income, no valuation
allowance was deemed necessary at April 30, 1996.
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (CONTINUED):
The components of the Company's deferred tax assets and liabilities at
April 30, 1996 under SFAS 109 are as follows:
State
Federal and City Total
------- -------- -----
Deferred Tax Assets:
Tax benefit attributable to:
Allowance for doubtful accounts $ 91,000 $ 59,000 $ 150,000
Accrued incentive bonuses 95,000 62,000 157,000
Other (warranty, SARs, inventory
and other) 80,000 51,000 131,000
--------- --------- ---------
266,000 172,000 438,000
Deferred tax liability, tax
depreciation in excess of book
depreciation 38,000 25,000 63,000
--------- --------- ---------
Net deferred tax asset $ 228,000 $ 147,000 $ 375,000
========= ========= =========
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
On December 31, 1992, the Company entered into an employment
agreement ("agreement") with the Chairman of the Company, which
was amended on March 28, 1995, providing for base salary plus
incentive compensation and fringe benefits as defined in the
agreement, through December 31, 1997. At April 30, 1996, the
Company has accrued $224,000 of incentive compensation and
$85,000 of accrued fringe benefits.
The Company, its president, its wholly-owned subsidiaries and two
other employees (collectively the "defendants") were named as
defendants in an action commenced by a competitor. Also named as
co-defendants were two related entities and a customer. On March
28, 1996, this litigation was settled with no material effect on
the Company's financial position, operations or cash flows.
In addition, various other lawsuits and claims arising in the
ordinary course of business have been instituted against the
Company. While the ultimate effects of such litigation cannot be
determined at present, it is management's opinion, based on the
advice of legal counsel, that any liabilities resulting from the
actions would not have a material effect on the Company's
financial position, results of operations or cash flows.
NOTE 12 - CONCENTRATION OF CREDIT RISK:
The Company's cash, including Certificates of Deposit of
approximately $1,030,000 are maintained in a financial
institution, and at times exceeds the Federal Deposit Insurance
Corporation coverage of $100,000. Management regularly monitors
the financial condition of the financial institution in order to
keep the potential risk to a minimum.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRECOM, INC.
s/s Paul Mendez
Date: July 23, 1996 By-------------------------
Paul Mendez, Chairman of
the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
s/s Paul Mendez
- ------------------------- Chairman of the Board, July 23, 1996
Paul Mendez President and Chief
Executive Officer
s/s Richard K. Nelson
- ------------------------- Vice-President-Finance July 23, 1996
Richard K. Nelson (Principal Financial
Officer)
s/s Peter Barotz
- ------------------------- Director July 23, 1996
Peter Barotz
s/s Jon Brody
- ------------------------- Director July 23, 1996
Jon Brody
s/s Ronald A. Levin
- ------------------------- Director July 23, 1996
Ronald A. Levin
s/s Orhan I. Sadik-Khan
- ------------------------- Director July 23, 1996
Orhan I. Sadik-Khan
s/s Richardson G. Scurry, Jr.
- ------------------------- Director July 23, 1996
Richardson G. Scurry, Jr.
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FIRECOM, INC.'S CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME AND
STATEMENT OF CASH FLOW FOR THE PERIOD ENDED APRIL 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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0
1,437
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</TABLE>
