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, 1997
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
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
incorporation or organization) Identification No.)
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
--------------------------------------
(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
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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-
$15,336,000
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 28, 1997 was $3,609,750.
As of July 28, 1997, the Registrant had 5,908,194 shares of
Common Stock outstanding.
Documents incorporated by Reference: None.
<PAGE>
PART I
------
ITEM 1. BUSINESS
----------------
GENERAL.
--------
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
-------------------------------------
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, 1997, revenues from the
sale of the fire alarm, communication systems and other building
systems constituted approximately 57% of the Company's
consolidated revenues.
FIRECOM LIFE SAFETY NET 2000 SYSTEM
-----------------------------------
The new Firecom LSN 2000 System represents the latest state-of-
the-art technology available in Life Safety equipment. The
Firecom LSN 2000 System integrates 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. This Firecom Systems includes a
communication system consisting of amplifiers and loudspeakers
for sounding alarms and paging from either a floor warden station
or a fire command station. The newly designed LSN 2000 fire alarm
and communication system, manufactured by Firecom, will be
replacing the older 8500 System and is completely backward
compatible to upgrade the older Firecom 8500 System as well as
designed to meet the needs of the national market.
OTHER FIRE CONTROL AND COMMUNICATION SYSTEMS
--------------------------------------------
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.
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SERVICE
-------
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 s products as well as products of other Life Safety
equipment manufacturers.
For the fiscal year ended April 30, 1997, revenues earned from
servicing systems constituted approximately 43% of the Company's
consolidated revenues.
MARKETING
---------
The Company's fire alarm, communication and other building
systems are sold in the New York area 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 began marketing the LSN 2000 System in January of 1997 in
New York City and the rest of the country. Outside of New York
City, the Company markets the LSN 2000 through a network of
regional managers, sales representatives and distributors.
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
-----------
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
-----------
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
---------------------
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,
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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 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 a patent pending on its LSN 2000 System.
The Company has several trademarks, including the name "Firecom"
and "Technology Protecting Life," that are registered with the
United States Patent and Trademark Office.
EMPLOYEES
---------
As of July 28, 1997, the Company employs approximately 130 full-
time employees, 37 of whom are salaried and 93 of whom are paid
on an hourly basis. With the exception of the Company's 3
regional managers for its LSN 2000 System, all of its 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
-------
As of April 30, 1997, the Company had a backlog for fire control
and other systems of approximately $2,372,000, substantially all
of which it anticipates completing in the current fiscal year.
The backlog at April 30, 1996 was approximately $3,178,000.
ITEM 2. PROPERTY
-----------------
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.
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 5,000 square
foot building in Woodside, New York, which it utilizes for
additional warehouse space under a lease, which will expire on
March 31, 1998. It has an annual average rent of $30,450. The
Company also leases 1,000 square feet of additional space in
Woodside, New York under a lease which expired on March 31, 1997.
It had an average annual rent of $9,600. This lease is being
continued on a month-to-month basis while its terms are being
negotiated.
ITEM 3. LEGAL PROCEEDINGS
-------------------------
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None
PART II
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ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
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SECURITY HOLDER MATTERS
-----------------------
(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
HIGH LOW
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
Fiscal 1997:
First quarter $ 12/16 $ 11/16
Second quarter 1.063 15/16
Third quarter 1.125 1.070
Fourth quarter 1.125 1.031
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 28, 1997, there were 356 record holders of
the Company's Common Stock. The closing bid and asked prices for
the Company's Common Stock on July 28, 1997 were $1.07 and $1.14
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. The
Company's future dividend policy will depend on the earnings,
capital requirements, financial condition and other factors
considered relevant by the Company's Board of Directors. On June
11, 1997, the Board declared payable all cumulative dividends in
arrears ($905,000) on the Company's Series A Preferred Stock.
This amount was paid on July 22, 1997 (see Note 13 in the
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accompanying "Notes to the Consolidated Financial Statements").
At that same time, all of this Preferred Stock was exchanged for
the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
---------------------
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,
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1997 1996
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Net Sales 100.0% 100.0%
Cost of Sales 52.5 51.8
Selling, General and
Administrative Expenses 25.9 24.1
Research & Development 4.7 3.6
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Operating Income 16.9 20.5
Other Income (Expense) (0.1) (0.6)
Income Tax Expense 7.6 9.4
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Net Income 9.2 10.5
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1997 FISCAL YEAR COMPARED TO 1996 FISCAL YEAR
---------------------------------------------
Consolidated sales for the Company's operations increased by
approximately 3%. Sales for the Fire Controls division, which
sells life safety and other electronic systems for high rise
buildings, were slightly higher than the prior year. Sales for
Company's Fire Service, Inc. subsidiary declined by 2% versus
1996. Revenues for the Company's FRCM Case-Acme, Inc. subsidiary
increased by 18% versus prior year. Fire Controls generated
47.0% of total revenues, Fire Service 29.1% and FRCM Case-Acme
23.9%.
The small increase in revenues for the Fire Controls division
reflects the continued weakness in the New York City market place
with regards to new construction of buildings. Offsetting this
weakness was the increase 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 decline in
sales for the Fire Service, Inc. subsidiary, which services
systems sold by the Fire Controls Division and other Life Safety
equipment manufacturers, resulted from intense competition for
new or expanded contracts and a resulting adverse pressure on
contract prices. The increase in FRCM CaseAcme, Inc. subsidiary
revenues primarily reflects a strong market for 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 $1,853,000 at April 30, 1997, a decrease of
$986,000 from the backlog of April 30, 1996. FRCM Case-Acme had
a backlog of approximately $519,000 for additions and retrofits
to its systems at April 30, 1997 an increase of $180,000 from the
backlog of April 30, 1996. The poor new construction environment
and highly competitive New York market for fire protection
systems and services were the primary reasons for the reduction
in the Company's total backlog.
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Selling, general and administrative expenses for the year ended
April 30, 1997 increased approximately $385,000 as compared to
the year ended April 30, 1996 primarily due to increases in staff
(3 regional managers) and sales and marketing expense aimed at
the Company's launching of its LSN 2000 System in the national
market.
Research and development costs were $721,000 for the year ended
April 30, 1997 as compared to $531,000 in the year ended April
30, 1996. These expenditures primarily reflect the development
of the LSN 2000 System and the Company's commitment to be able to
provide its current and future customers with the latest stateof-
the-art fire and life safety systems.
Operating income for the 1997 fiscal year was $2,589,000 as
compared to $3,051,000 for fiscal 1996. The decrease in
operating income for fiscal 1997 of 15.1% from fiscal 1996
resulted primarily from the higher marketing, sales and research
and development costs associated with the introduction of the LSN
2000 System and expansion from New York City into the national
market.
Significant changes in balance sheet items from April 30, 1996 to
April 30, 1997 are highlighted as follows:
1: Accounts receivable increased by $623,000 (17%), due to
an increase in sales of $452,000 and a slowdown in
collections due to a general weakness throughout the
New York City construction industry. Management
believes that reserves for doubtful accounts are
adequate to cover anticipated losses in collection.
2: Inventories were $112,000 or 10% higher at April 30,
1997 than at April 30, 1996, primarily due to
material requirements for the LSN 2000 System and the
national market.
3: The increase in Property, plant and equipment and Other
assets primarily reflect the acquisition of computers
and computer peripheral equipment.
4: The increase in debt resulted from the acquisition of
stock from the Norwood Venture Corporation (see Notes
5, 6 & 8 in the accompanying "Notes to the Consolidated
Financial Statements") on March 27, 1997 less
reductions in debt from scheduled payments to debt as
of April 30, 1996. The debt incurred in the Norwood
transaction was $1,283,332.
5: Equity changes resulted from purchase of shares from
the Norwood Venture Corp. on March 27, 1997.
Interest expense for fiscal 1997 was $84,000, 27% less than
fiscal 1996 due to the reduction in the outstanding debt as of
April 30, 1996. This reduction in debt was partially offset by
the debt incurred with the Norwood Venture Corp. transaction on
March 27, 1997.
LIQUIDITY
---------
Net cash provided from operations was $849,000. After taking
into account funds used for the repayment of debt ($112,000), net
common stock transactions ($234,000) and toward capital
expenditures ($203,000), this resulted in a net increase in cash
of $300,000. The Company has a revolving line of credit up to a
maximum of $2,000,000 (there was no outstanding balance at April
30, 1997) and a first mortgage note of $377,000 at April 30,
1997. These notes are collateralized by substantially all of the
Company's assets and are subject to certain covenants. As of
April 30, 1997, preferred dividends in arrears were approximately
$876,000. These dividends in arrears were satisfied subsequent
to year-ended April 30, 1997 (see Notes 7 & 13 of the "Notes to
the Consolidated Financial Statements") and the preferred stock
was exchanged for common stock. There are restrictions on the
payment of dividends in the Company's loan documents.
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, 1997.
In late July of 1997, the Company borrowed $500,000 against the
line in order to support the working capital requirements of its
national expansion.
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During the fiscal year ending April 30, 1998 ("Fiscal 1998"), the
Company intends to spend approximately $650,000 on research to
develop new fire alarm and communication systems. These R & D
expenditures will be financed from the Company's working capital
and/or its line of credit.
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 $308,396, 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 collateralized 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.
On March 27, 1997, the Company signed a Purchase Agreement to
purchase 583,331 shares of the Company's $.01 per value stock at
$1.40 per share and 750,002 warrants at $1.05 per warrant held by
Norwood Venture Corporation ("Norwood"). As part of the terms of
purchase the Company issued to Norwood a six-year subordinated
promissory note in the amount of $1,283,332 bearing interest at
10% per annum. Principal and interest totaling $71,755 is to be
paid quarterly commencing June 27, 1997 through March 27, 2003
(see Notes 5, 6 & 7 in the accompanying "Notes to the
Consolidated Financial Statements").
The Company's net working capital was approximately $6,627,000 at
April 30, 1997. While revenues from the New York City market,
where the Company historically operated, continue to be weak,
management believes that this weakness will be more than offset
by the successful introduction of its new product into the
national market. 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.
SUBSEQUENT EVENTS
-----------------
On June 26, 1997, the Company acquired certain service contracts
and intellectual property rights from a New York supplier of Life
Safety systems for $285,200. $150,000 was paid at closing and
the balance of $135,200 is payable quarterly through August 2000,
with interest of 10% (see Note 13 in the accompanying "Notes to
the Consolidated Financial Statements").
On July 22, 1997, the Company exchanged of all of the Series A
Preferred Stock having a liquidation preference of $1,437,000 for
an aggregate of 1,149,600 shares of the Company's common stock
(see Note 13 in the accompanying "Notes to the Consolidated
Financial Statements").
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RECENT PRONOUNCEMENTS
---------------------
NEWLY ISSUED ACCOUNTING STANDARD - In March 1997, the Financial
Accounting Standards Board released Statement No. 128 (SFAS No.
128) "Earnings per Share". SFAS No. 128 requires dual
presentation of basic and diluted earnings per share on the face
of the income statement for all periods presented. Basic per
share excludes dilution and is computed by dividing income
available to common shareholders by the weighted number of common
shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock
that then share in the earnings of the entity. Diluted earnings
per share is computed similarly to fully diluted earnings per
share pursuant to APB No. 15. SFAS No. 128 is effective for
fiscal years ending after December 15, 1997, and when adopted, it
will require restatement of prior year's earnings per share.
Management does not believe that SFAS No. 128 will have a
material impact upon historical net income per share as reported.
COMPANY'S STATEMENT FOR FORWARD-LOOKING INFORMATION
---------------------------------------------------
This annual report, including management's discussion and
analysis set forth above, contains certain forward-looking
statements, including statements regarding the Company's results
of operations, financial position and potential competition.
These forward-looking statements are based on current
expectations that involve a number of risks and uncertainties,
including the ability to market and sell its new LSN 2000 product
nationally, outside of the Company's traditional New York City
market.
ITEM 7. FINANCIAL STATEMENTS
----------------------------
The consolidated financial statements and independent auditors'
report 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
-----------------------------------------------------
None.
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PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
--------------------------------------------------------------
PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
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ACT
---
NAME AGE OFFICE
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Paul Mendez 54 Chairman of the Board,
President and Director
Howard L. Kogen 57 Executive Vice President
Antoine J. Sayour 47 Senior Vice President
William J. Lazich 53 Vice President-Finance
Peter Barotz 68 Director
Orhan I. Sadik-Khan 67 Director
Ronald A. Levin 54 Director
Hilary B. Miller 46 Director
Harry B. Levine 61 Director
Directors hold office for a period of two years from the Annual
Meeting of Shareholders at which they are elected or until their
successors are duly elected and qualified. At the 1995 Annual
Meeting, Mr. Mendez and Mr. Barotz were elected to serve until
the 1997 Annual Meeting. At the 1996 Annual Meeting, Mr. Sadik-
Khan, Mr. Ronald Levin and Mr. Harry Levine were elected to serve
until the 1998 Annual Meeting. The holder of the Company's
Series A Preferred Stock elected Mr. Miller in September of 1996.
The Company's officers are appointed by the Board of Directors
and hold office at the will of the Board.
Paul Mendez was elected a Director, Chairman of the Board and
President on July 19, 1991. He is also employed as Vice
President of Multiplex Electrical Services, Inc., a company,
which is engaged in the business of manufacturing, installing and
servicing fire alarm systems.
Howard L. Kogen joined the Company as Vice President-Sales and
Marketing in March 1984. He was appointed Executive Vice
President and Chief Operating Officer in 1990.
Antoine J. Sayour joined the Company as Chief Engineer in 1984.
He is now Senior Vice President of the Company and President of
the Fire Service Subsidiary.
William J. Lazich joined the Company as Vice President-Finance in
July 1996. Prior to joining the Company, Mr. Lazich had been the
Controller, for more than five years, of a direct
marketing/manufacturing firm headquartered in Westchester County,
New York
Peter Barotz was elected a director of the Company in April 1993.
Mr. Barotz, for more than the last five years, has been engaged
primarily as a private investor. Mr. Barotz has also served as
President of Panda Capital Corp.; a New Rochelle, New York based
business engaged in the export business.
Orhan Sadik-Khan was elected a director of the Company in April
1993. Mr. Sadik-Khan serves as an advisory director of Paine
Webber Incorporated and as an advisory director of Russian
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Partners Management, LLC, a venture capital fund. Previously he
served as a managing director of each of these companies.
Ronald A. Levin, since 1991, has been a partner in the certified
public accounting firm of Levin, Bartlett & Co., Franklin Lakes,
New Jersey.
Hilary B. Miller has been President of Stranger, Miller, Inc.
since 1987. His company is a private investment
firm located in Greenwich, CT.
Harry B. Levine has served as President of Levine Securities,
Inc. for more than five years. His firm is a member of the New
York Stock Exchange.
There are no family relationships between any director or officer
and any other director or officer.
The Board of Directors has no standing committees.
The Registrant is not aware of any Section 16(a) filing
deficiencies.
ITEM 10. EXECUTIVE COMPENSATION
-------------------------------
The following table sets forth certain information with respect
to cash compensation paid or accrued by the Company, for services
rendered to the Company during the fiscal year ended April 30,
1997, to each of the executive officers of the Company whose
aggregate remuneration exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation
Long-Term
Name and Compensation
Principal Fiscal Options/SAR
Position Year Salary Bonus Awards
--------------------------------------------------------------------
Paul Mendez 1997 $200,000 $184,031 -0-
Chairman and 1996 200,000 223,731 -0-
President 1995 150,000 201,264 -0-
Howard L. Kogen 1997 $138,000 $47,186
Executive Vice 1996 132,000 54,203
President 1995 129,000 49,566 66,000shs(1)
Antoine J. Sayour 1997 $118,420 $32,267
Senior Vice 1996 110,430 39,694
President 1995 106,430 39,075 63,000shs(1)
(1) Stock Option Award
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
--------------------------------------------------------------
OPTION/SAR VALUES
-----------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONTY
OPTION/SAR'S OPTIONS/SAR'S
SHARES AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ------------- -------------
Paul Mendez -0- -0- 400,000/ $170,000/
100,000 $42,500
Howard L. -0- -0- 160,400/ $110,410
Kogen 39,600 $20,790
Antoine J. -0- -0- 112,200/ $76,605/
Sayour 37,800 $19,845
STOCK OPTIONS
-------------
The Company adopted an Incentive and Non-Qualified Stock Option
Plan (the "Plan") which provided for the granting of not more
than 600,000 shares of Common Stock. The Plan is open to
officers, directors and certain employees of the Company and will
expire on April 30, 2001. Subject to the provisions of the Plan
with respect to death, retirement and termination of employment,
the maximum period during which each Option may be exercised may
be fixed by the Board at the time each Option is granted but
shall in no event exceed ten (10) years. The price at which
shares may be purchased upon exercise of a particular Option
shall be not less than eighty-five percent (85%) of the fair
market value of such shares on the date such Option is granted,
as determined by the Board. Options for an aggregate of 506,670
shares of Common Stock at exercise prices ranging from $0.30 to
$0.75 were outstanding under the Plan as of April 30, 1997.
Included in the aggregate outstanding were options to purchase
51,000 shares at $.75 per share issued during the fiscal year
ended April 30, 1997. No options were exercised during the
fiscal year. 40,000 options expired.
DIRECTORS' COMPENSATION AND SAR AWARDS
--------------------------------------
Directors of the Company who are not also executive officers of
the Company receive an annual retainer of $12,000 plus $1,000 for
each Board meeting they attend. In addition each director, other
than Mr. Mendez, is granted the right to receive a cash payment
equal to the increase in value of 20,000 shares of the Company's
Common Stock from the date of their first election or appointment
to the Board, and payable upon, the earliest to occur of various
qualifying events. The Company may, at its sole option, defer
payment for a maximum of 24 months from the date of a valid
notice of exercise of these rights. The Company recorded a total
liability of approximately $55,000 as of April 30, 1997 (versus
an accrual of $40,000 at April 30, 1996) in respect of these
rights.
Concurrently with the execution of Mr. Mendez' Employment
Agreement, and as additional consideration thereunder, Mr. Mendez
and the Company entered into a stock appreciation rights
agreement pursuant to which Mr. Mendez was granted the right to
receive, in cash, the appreciation value (the "Appreciation
Rights") with respect to 500,000 shares of Common Stock. The
Appreciation Rights are exercisable in pro rata installments over
12
<PAGE>
a five-year period and have initial value prices ("base prices")
as follows: 200,000 Appreciation Rights have a base price of $.25
per share; 100,000 Appreciation Rights have a base price of $.50
per share; 100,000 Appreciation Rights have a base price of $1.00
per share; and 100,000 Appreciation Rights have a base price of
$1.50 per share. Notwithstanding anything in the above agreement,
Mr. Mendez shall not be entitled to receive any cash payment as a
result of the exercise of Rights under the Agreement prior to May
1, 1996. The Company recorded a total liability of approximately
$202,000 as of April 30, 1997 (versus an accrual of $64,000 at
April 30, 1996) in respect of these rights.
EMPLOYMENT AGREEMENTS
---------------------
On December 31, 1992, Mr. Mendez and the Company entered into an
employment agreement (the "Mendez Employment Agreement") which
provides, among other things, that Mr. Mendez, in consideration
for his services as Chairman of the Board and Chief Executive
Officer of the Company, will be paid a base salary at the rate of
$150,000 per annum and incentive compensation equal to a
percentage of the annual earnings, before interest and taxes (as
adjusted by the Board of Directors for certain extraordinary and
other non-recurring events and as more fully described in the
Mendez Employment Agreement)("Adjusted EBIT") of the Company.
Generally, Mr. Mendez will be entitled to receive an amount equal
to 6% of Adjusted EBIT if the Company's Adjusted EBIT for any
fiscal year is between $500,000 and $1 million and 8% of the
Adjusted EBIT if the Company's Adjusted EBIT for any fiscal year
is greater than $1 million. In addition, Mr. Mendez is entitled
to participate, at no cost or expense to him, in all employee
benefit programs maintained by the Company to the extent that
such programs are available generally to executive officers,
provided that the aggregate annual value to Mr. Mendez of such
benefits does not exceed $30,000. To the extent that the
aggregate value of such benefits does not exceed $30,000, Mr.
Mendez may elect to receive the differential in cash or applied
to other fringe benefits of his selection.
The Mendez Employment Agreement also provides that Mr. Mendez'
employment is terminated by him for "Good Reason"(as defined
below) or by the Company without Mr. Mendez' consent and without
Cause (as defined in the Mendez Employment Agreement) and not due
to death or disability of Mr. Mendez, Mr. Mendez shall be
entitled to receive (in addition to continuation of his executive
benefits) his base salary for the greater of two full years from
the date of termination or the remainder of the Mendez Employment
Agreement and whatever incentive compensation he would otherwise
been entitled to receive for the fiscal year during which his
employment is terminated. Good Reason is defined as the
occurrence, without Mr. Mendez' prior consent of (i) a reduction
in rank or an assignment of duties materially inconsistent with
Mr. Mendez' positions as Chairman of the Board and Chief
Executive Officer of the Company, without any substantial failure
of Mr. Mendez to perform such duties properly and effectively;
(ii) a reduction by the Company in Mr. Mendez' annual base salary
or a material reduction or elimination of his perquisites of
office or a substantial reduction or elimination of his aggregate
available employee benefits as in effect at December 31, 1992 or
as the same may be increased from time to time;(iii) a change in
the location at which Mr. Mendez' services are to be regularly
performed to a location out of the 30-mile radius of the Empire
State Building, New York, New York, without a comparable change
for other executive officers of the Company, or any willful,
material breach by the Company of any provision of Mr. Mendez'
Employment Agreement not cured within a period of ten business
days after receipt by the Company of written notice from Mr.
Mendez of his intention to resign for Good Reason because of such
breach; or(iv) the merger or consolidation of the Company with or
into any other entity as a result of which Mr. Mendez is reduced
in rank or is assigned duties with the surviving entity that are
materially inconsistent with his then present position(s) with
the Company. In addition. the Mendez Employment Agreement
provides that in the event of termination of Mr. Mendez'
employment thereunder due to death or disability (as defined
therein), the Company shall pay Mr. Mendez (or his estate, as the
case may be) his annual base salary for one year following his
termination of employment and whatever incentive compensation Mr.
Mendez would otherwise been entitled to receive for the fiscal
year during which his employment is terminated. The Mendez
Employment Agreement expires on April 30, 2000.
The Mendez Employment Agreement acknowledges Mr. Mendez'
beneficial ownership and involvement in Multiplex and permits Mr.
Mendez to devote reasonable periods of time to the business of
Multiplex, provided that his involvement with Multiplex' business
does not interfere with the performance of his duties and
13
<PAGE>
obligations under the Mendez Employment Agreement and that Mr.
Mendez at all times complies with the guidelines for limiting
conflicts of interest between the Company and Multiplex as
previously adopted by the Board of Directors of the Company and
accepted by Mr. Mendez.
On March 28, 1995, the Mendez Employment Agreement was amended to
(i) extend the term of the Agreement through April 30, 2000, (ii)
increase Mr. Mendez's annual base salary to $200,000, effective
May 1. 1995, and (iii) to increase Mr. Mendez's annual benefit
value threshold from $30,000 to $37,000.
The Company entered into a new employment agreement with Mr.
Kogen effective May 1, 1994 and expiring April 30, 1999. In
consideration of his services as Executive Vice President and
Chief Operating Officer of the Company, (i) Mr. Kogen is to
receive an annual salary of $129,000 effective May 1, 1994 and
(ii) is entitled to annual increases of approximately 3% to a
total of $145,000 effective on May 1, 1998 and (iii) will receive
a bonus based on the Operating Income of the Company. Kogen's
employment agreement also contains a six-month non-competition
provision following the term of the agreement or any extension
thereof.
The Company entered into a new employment agreement with Mr.
Sayour effective May 1, 1994 and expiring April 30, 1999. In
consideration of his services as Senior Vice President of the
Company, (i) Mr. Sayour is to receive an annual salary of
$106,430 effective May 1, 1994 and (ii) is entitled to annual
increases of approximately $4,000 per year to a total of $122,857
effective on May 1, 1998 and (iii) will receive a bonus based on
the Operating Income of the Company. Sayour's employment
agreement also contains a six-month non-competition provision
following the term of the agreement or any extension thereof.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------------------------------------------------------------
MANAGEMENT.
----------
The following table sets forth certain information as of July 28,
1997 (except for employee stock option information which is as of
April 30, 1997) regarding (i) the ownership of Common Stock of
the Company by each person who is known to the management of the
Company to have been the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) the
ownership interests of each present director, (iii) the ownership
interests of the Chief Executive Officer and other executive
officers of the Company whose total annual salary and bonus
exceeded $100,000 during the fiscal year ended April 30, 1997 and
(iv) the ownership interests of all directors and executive
officers of the Company as a group.
Name and Amount and
Title Address of Position Nature of
of Beneficial with Beneficial % of
Class Owner Company Ownership Class
-----------------------------------------------------------------------
Common Paul Mendez Chairman of the 2,663,646 45.1%
Stock 13 Coventry Road Board (1)(2)(3)
$.01 par Livingston, NJ Chief Executive
value Officer and
Director
Firecom Holdings, L.P. None 1,526,850 25.8%
13 Coventry Road (1)
Livingston, NJ
Ildar Idris None 353,354(2) 6.0%
15 Horvath Strasse
Grfeling 8032
West Germany
Carol Mendez None 514,800(2) 8.7%
13 Coventry Road
Livingston, NJ
14
<PAGE>
Howard L. Kogen Executive Vice 179,500(4) 3.0%
President
Antoine J. Sayour Senior Vice 132,500(5) 2.2%
President
Orhan I. Sadik-Khan Director 51,500(2) 0.8%
Hilary B. Miller Director -0- --
Ronald A. Levin Director -0- --
Peter Barotz Director -0-(2) --
Harry B. Levine Director 5,000 --
All executive officers 3,032,146 49.1%
and directors as a (1)(2)(3)(4)
group (5 persons) (5)
(1) Includes 1,526,850 shares of Common Stock held by Firecom
Holdings, L.P., a Delaware limited partnership ("Firecom
Holdings"), of which Paul Mendez is the general partner. Firecom
Holdings is in the process of liquidation, following which
approximately 40% of the shares owned by it will be distributed
to Mr. Mendez and 40% to Carol Mendez.
(2) Pursuant to a voting agreement with certain shareholders of
the Company, Paul Mendez, Carol Mendez and the other parties
thereto agreed that all shares of Common Stock held by Naomi
Pollack, Nathan Barotz, Celia Barotz and Lam Investment Co. (the
"Barotz Group"), Orhan Sadik-Khan, Dr. Ildar Idris, Karim Sadik-
Khan, Janette Sadik-Khan, Karen Sadik-Khan, Jan Sadik-Khan and
Kadria Sadik-Khan (the "Sadik-Khan Group"), Carol Mendez and Mr.
Mendez shall be voted so that the Board of Directors of the
Company shall consist of six persons elected by the holders of
the Common Stock as follows: Mr. Sadik-Khan (or his designee),
Mr. Barotz (or his designee), Mr. Mendez and three persons
designated by Mr. Mendez.
(3) Includes 536,494 shares (the "Option Shares") for which Paul
Mendez has an irrevocable proxy to vote pursuant to an Option and
Escrow Agreement, dated as of July 18, 1995 (the "Option and
Escrow Agreement") between the Company and certain members of the
May family (the "Selling Shareholders"). Under the terms of the
Option and Escrow Agreement, each Selling Shareholder has the
right, but no the obligation, to require the Company to purchase,
on September 1, 1998, his or her Option Shares at a price of
$1.10 per share. At any time under the Option and Escrow
Agreement, the Company shall have the right, but not the
obligation, to purchase all of the Option Shares at a purchase
price of $1.25 per share. Under the terms of the Option and
Escrow Agreement, Mr. Mendez has an irrevocable proxy to vote the
Option Shares until the termination of the agreement. See
"Related Transactions."
(4) Includes 19,100 shares of Common Stock beneficially owned by
Mr. Kogen with his wife as joint tenants and 160,400 shares of
Common Stock underlying presently exercisable options.
(5) These shares include 20,300 shares of Common Stock
beneficially owned by Mr. Sayour with his wife as joint tenants
and 112,200 of Common Stock underlying presently exercisable
options.
15
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
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 $308,396 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 collateralized 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 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 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, 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.
This agreement was entered into because management believes it
represents a good value for the Company. Taking into
consideration the Company's financial condition and the thinly
traded nature of the stock, management believes that the price
paid for the stock is reasonable. The Board of Directors secured
a fairness opinion from an independent investment banker
supporting the fairness of the transaction from the Company's
point of view.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(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].
16
<PAGE>
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
Report on Form 8-K dated 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]. 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 December 31, 1992
with Paul Mendez, and Amendment thereto dated
17
<PAGE>
March 28, 1995 [incorporated by reference to
Exhibit 10(a) to the Company's Report on Form 8-K
dated April 30, 1995].
10(b) Stock Appreciation Rights Agreement dated as of
December 31, 1992 with Paul Mendez [incorporated
by reference to Exhibit 10(b) to the Company's
Report on Form 8-K dated April 30, 1993].
10(c) 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(d) Purchase Agreement dated as of May 8, 1993 with
Case Acme Inc. [incorporated by reference to
Exhibit 10(i) to the Company's Report on Form 8-K
dated April 30, 1993].
10(e) Employment Agreement dated May 1, 1994 between the
Company and Howard Kogen and [incorporated by
reference to Exhibit 10(e) to the Company's Report
on Form 8-K dated April 30, 1994].
10(f) Employment Agreement dated May 1, 1994 between the
Company and Antoine J. Sayour and [incorporated by
reference to Exhibit 10(f) to the Company's Report
on Form 8-K dated April 30, 1994].
10(g) Stock Purchase Agreement dated June 21, 1995
between the Company and Helen May, etal and
[incorporated by reference to Exhibit 10(l) to the
Company's Report on Form 10-K dated April 30,
1995].
10(h) Option & Escrow Agreement dated July 14, 1995
between the Company and Helen May, etal and
[incorporated by reference to Exhibit 10(m) to the
Company's Report on Form 10-K dated April 30,
1995].
10(i) Purchase Agreement dated as of March 27, 1997
between Norwood Venture Corporation and the
Company and related subordinated promissory note
[incorporated by reference to Exhibit 2.1 and 4.1
to the Company's Report on Form 8-K dated March
27, 1997].
22 SUBSIDIARIES OF THE COMPANY
(b) Reports on Form 8-K NONE
18
<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: August 4, 1997 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 August 4, 1997
---------------------- the Board,
Paul Mendez President and
Chief Executive
Officer
s/s William J. Lazich Vice-President August 4, 1997
---------------------- -Finance
William J. Lazich (Principal
Financia
Officer)
s/s Peter Barotz Director August 4, 1997
--------------------
Peter Barotz
s/s Hilary B. Miller Director August 4, 1997
--------------------
Hilary B. Miller
s/s Ronald A. Levin Director August 4, 1997
----------------------
Ronald A. Levin
s/s Orhan I. Sadik-Khan Director August 4, 1997
----------------------
Orhan I. Sadik-Khan
s/s Harry B. Levine Director August 4, 1997
---------------------
Harry B. Levine
19
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
APRIL 30, 1997
<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-17
F-1
<PAGE>
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, 1997 and the related
consolidated statements of income, stockholders' equity and cash flows
for the years ended April 30, 1997 and 1996. 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,
1997, and the consolidated results of their operations and their cash
flows for the years ended April 30, 1997 and 1996 in conformity with
generally accepted accounting principles.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
July 3, 1997, except for Note 13 as to
which the date is July 29, 1997
F-2
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1997
ASSETS
CURRENT ASSETS:
Cash And Cash Equivalents $ 2,465,000
Accounts Receivable, Net Of Allowance For
doubtful Accounts of $293,000 4,340,000
Inventories 1,264,000
Deferred tax assets 406,000
Prepaid expenses and other 82,000
---------------
Total current assets 8,557,000
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization of $692,000 575,000
OTHER ASSETS:
Product enhancement costs, less accumulated
amortization of $433,000 75,000
Deferred tax asset 60,000
Prepaid loan fees 22,000
---------------
157,000
---------------
$ 9,289,000
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 236,000
Accounts payable 692,000
Accrued expenses and other 900,000
Income taxes payable 102,000
---------------
Total current liabilities 1,930,000
LONG-TERM LIABILITIES:
Notes payable 1,671,000
Accrued compensation 256,000
---------------
Total long-term liabilities 1,927,000
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 5,412,338,
outstanding 4,381,344 54,000
Capital in excess of par value 890,000
Retained earnings 3,687,000
---------------
6,068,000
Less treasury stock, at cost,
1,030,994 shares 1,226,000
---------------
Total stockholders' equity 4,842,000
---------------
$ 9,289,000
===============
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended April 30, 1997 and 1996
1997 1996
------------ ------------
NET SALES:
Product $ 8,813,000 $ 8,530,000
Services 6,523,000 6,354,000
------------ ------------
15,336,000 14,884,000
------------ ------------
COST OF SALES:
Product 4,896,000 4,698,000
Services 3,156,000 3,015,000
------------ ------------
8,052,000 7,713,000
------------ ------------
GROSS PROFIT 7,284,000 7,171,000
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 3,974,000 3,589,000
Research and development 721,000 531,000
------------ ------------
Total operating expenses 4,695,000 4,120,000
------------ ------------
INCOME FROM OPERATIONS 2,589,000 3,051,000
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 74,000 30,000
Interest expense (84,000) (115,000)
------------ ------------
(10,000) (85,000)
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 2,579,000 2,966,000
INCOME TAX EXPENSE 1,170,000 1,404,000
------------ ------------
NET INCOME $ 1,409,000 $ 1,562,000
============ ============
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS
Primary and fully diluted $ 1,295,000 $ 1,463,000
============ ============
NET INCOME PER COMMON SHARE
Primary and fully diluted $ .23 $ .25
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN
COMPUTING NET INCOME PER SHARE
Primary 5,610,000 5,801,000
============ ============
Fully diluted 5,708,000 5,960,000
============ ============
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended April 30, 1997 and 1996
Series A
Preferred Stock Common Stock
--------------- ------------
Shares Amount Shares Amount
------ ------ ------ ------
BALANCES, April 30, 1995 1,200 $ 1,437,000 5,031,038 $50,000
PURCHASE OF TREASURY
STOCK
ISSUANCE OF PUT OPTION
RETIREMENT OF TREASURY
STOCK (202,031) (2,000)
WARRANTS EXERCISED 333,332 4,000
NET INCOME ----- ----------- --------- ------
BALANCES, April 30, 1996 1,200 1,437,000 5,162,339 52,000
PURCHASE OF TREASURY STOCK
AND WARRANTS
WARRANTS EXERCISED 249,999 2,000
NET INCOME ----- ----------- --------- ------
BALANCES, April 30, 1997 1,200 $ 1,437,000 5,412,338 $54,000
===== =========== ========= =======
Capital in
Excess of Retained Treasury Stock
Par Value Earnings Shares Amount
--------- -------- ------ ------
BALANCES, April 30, 1995 $ 2,242,000 $ 716,000 13,000 $ (1,000)
PURCHASE OF TREASURY
STOCK 636,694 (583,000)
ISSUANCE OF PUT OPTION (590,000)
RETIREMENT OF TREASURY
STOCK (172,000) (202,031) 174,000
WARRANTS EXERCISED 113,000
NET INCOME 1,562,000
--------- --------- --------- ----------
BALANCES, April 30, 1996 1,593,000 2,278,000 447,663 (410,000)
PURCHASE OF TREASURY STOCK
AND WARRANTS (788,000) 583,331 (816,000)
WARRANTS EXERCISED 85,000
NET INCOME 1,409,000
--------- --------- --------- -----------
BALANCES, April 30, 1997 $ 890,000 $ 3,687,000 1,030,994 $(1,226,000)
=========== =========== ========= ===========
Total
-----
BALANCES, April 30, 1995
PURCHASE OF TREASURY
STOCK $ 4,444,000
ISSUANCE OF PUT OPTION (583,000)
RETIREMENT OF TREASURY
STOCK (590,000)
WARRANTS EXERCISED --
NET INCOME 117,000
BALANCES, April 30, 1996 1,562,000
---------------
PURCHASE OF TREASURY STOCK
AND WARRANTS (1,604,000)
WARRANTS EXERCISED 87,000
NET INCOME 1,409,000
---------------
BALANCES, April 30, 1997 $ 4,842,000
===============
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended April 30, 1997 and 1996
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,409,000 $ 1,562,000
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 154,000 132,000
Provision for doubtful accounts 148,000 259,000
Amortization of loan fees 10,000 10,000
Deferred income tax credit (91,000) (30,000)
Changes in operating assets
and liabilities:
Increase in accounts receivable (771,000) (482,000)
Increase in inventories (112,000) (252,000)
(Increase) decrease in prepaid expenses
and other (71,000) 46,000
Increase in accounts payable 185,000 55,000
Decrease in accrued expenses and other (63,000) (5,000)
Increase (decrease) in income taxes payable (101,000) 190,000
Increase in accrued compensation 152,000 20,000
----------- -----------
Total adjustments (560,000) (57,000)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 849,000 1,505,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITY,
acquisition of property, plant, and equipment (203,000) (95,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (112,000) (791,000)
Proceeds from the sale of common stock 87,000 117,000
Payments for the purchase of treasury stock (321,000) (275,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (346,000) (949,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 300,000 461,000
CASH AND CASH EQUIVALENTS:
Beginning of year 2,165,000 1,704,000
----------- -----------
End of year $ 2,465,000 $ 2,165,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Years Ended April 30, 1997 and 1996
1997 1996
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the year $ 76,000 $ 119,000
========== ==========
Cash paid for income taxes during the year $1,244,000 $1,244,000
========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITY;
note payable issued for the purchase of treasury
stock and warrants $1,283,000 $ 308,000
========== ==========
See accompanying notes to consolidated financial statements.
F-7
<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. The 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 consolidated 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 and
amortized 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 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 affect taxable income. Valuation allowances
are established, when necessary, to reduce the deferred
income tax assets to the amount to be realized.
F-8
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS 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 system
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 common shares outstanding assumes shares issued from the
exercise of stock options and warrants to have been
outstanding for the full year.
USE OF ESTIMATES - The preparation of consolidated 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 consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ
from those estimates.
NEWLY ISSUED ACCOUNTING STANDARD - In March 1997, the
Financial Accounting Standards Board released Statement No.
128 (SFAS 128), "Earnings Per Share". SFAS 128 requires dual
presentation of basic and diluted earnings per share on the
face of the income statement for all periods presented.
Basic earnings per share excludes dilution and is computed
by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock
that then shared in the earnings of the entity. Diluted
earnings per share is computed similarly to fully diluted
earnings per share pursuant to APB No. 15. SFAS 128 is
effective for fiscal years ending after December 15, 1997,
and when adopted, it will require restatement of prior
years' earnings per share.
Management does not believe that SFAS 128 will have a
material impact upon historical net income per share as
reported.
F-9
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVENTORIES:
Inventories consist of the following at April 30, 1997:
Raw materials and sub-assemblies $1,257,000
Work-in-process 7,000
----------
$1,264,000
==========
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following at April 30,
1997:
Leasehold improvements $ 254,000
Machinery and equipment 565,000
Furniture and fixtures 448,000
----------
1,267,000
Less accumulated depreciation and amortization 692,000
---------
$ 575,000
==========
The Company owns its headquarters building located in
Woodside, New York. The building is approximately 16,000
square feet. Because of purchase accounting, it is carried
at no value on the books of the Company.
NOTE 4 - ACCRUED EXPENSES AND OTHER:
Accrued expenses and other consist of the following at April 30, 1997:
Professional fees $ 25,000
Vacation 237,000
Incentive compensation 262,000
Payroll 128,000
Fringe benefits 107,000
Sales tax 74,000
Warranty 31,000
Other 36,000
----------
$ 900,000
==========
F-10
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE:
Notes payable consist of the following at April 30, 1997:
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% $ 247,000
Note payable to Norwood Venture Corp., pursuant
to Purchase Agreement, (See Note 8) in quarterly
installments of $71,755 including interest,
commencing June 27, 1997, through March 27, 2003 10% 1,283,000
First mortgage note payable in monthly
installments of $4,333, plus interest,
through July 8, 1999 and collateralized by
substantially all of the Company's assets 10.2% 377,000
----------
1,907,000
Less current portion 236,000
----------
$1,671,000
==========
The notes are subordinate to the first mortgage note.
Aggregate future principal payments are as follows:
Years ending April 30:
1998 $ 236,000
1999 291,000
2000 530,000
2001 278,000
2002 239,000
Thereafter 333,000
----------
$1,907,000
==========
At April 30, 1997, the Company had an unused line of credit at prime of
up to $2,000,000 which expires in July 1999.
At April 30, 1997, the prime interest rate was 8.5%.
F-11
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS:
STOCK OPTIONS - The Company maintains a stock option plan
(the "Plan") which expires April 30, 2001. The common stock
reserved for issuance under the Plan is 600,000 shares. 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, 1997 and
1996 is as follows:
Number Per Share
of Shares Option Price
--------- ------------
Outstanding at April 30, 1995 498,670 $ .30-.60
Expired (3,000) .30
-------- ------------
Outstanding at April 30, 1996 495,670 $ .30-.60
Granted 51,000 .75
Expired (40,000) .30-.60
------- ------------
Outstanding at April 30, 1997 506,670 $.30-.75
======== ============
Exercisable at April 30, 1996 304,950 $ .30-.60
======== ============
Exercisable at April 30, 1997 331,230 $ .30-.75
======== ============
The exercise price of the above options approximated or
exceeded fair market value at the date of grant.
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). As
permitted by SFAS 123, the Company continues to apply the
recognition and measurement provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). The differences between the
recognition and measurement provisions of SFAS 123 are not
significant to the Company's results of operations.
F-12
<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 officers
and directors 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, 1997:
Rights Rights Base
Granted Exercisable Price FMV
------- ----------- ----- ---
(A) 200,000 160,000 $ .25 $ 1.13
(A) 100,000 80,000 .50 1.13
(A) 100,000 80,000 1.00 1.13
(A) 100,000 80,000 1.50 1.13
(B) 20,000 20,000 .94 1.13
(B) 20,000 20,000 1.20 1.13
(B) 60,000 60,000 .28 1.13
(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. All
unexercised rights will expire December 2002.
(B) These rights have been granted to directors upon their
being elected to the Board of Directors.
Selling, general and administrative expenses include charges
of approximately $182,000 and $29,000 for the years ended
April 30, 1997 and 1996, respectively, for compensation as a
result of the SARs. As of April 30, 1997, 40,000 rights have
been exercised amounting to approximately $30,000 pursuant
to the SARs. At April 30, 1997, the Company has accrued
compensation of approximately $256,000 as a result of the
SARs.
WARRANTS - In 1987, in connection with an acquisition, 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 of which 377,250
shares were exercised on July 22, 1997 (See Note 13). 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 were exercisable immediately
with 83,333 shares expiring quarterly beginning June 1995
through March 1999. As of April 30, 1997, 583,331 shares
were exercised of which all were repurchased by the Company
along with the remaining 750,002 warrants (See Note 8).
F-13
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - SERIES A PREFERRED STOCK:
The Series A preferred stock was issued to a company owned
by certain directors of the Company and is redeemable at its
option for $1,197.50 per share plus dividends accrued as
outlined below from and after May 1, 1990. The Series A
preferred stock was exchanged for common stock on July 22,
1997 (See Note 13).
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, 1997, dividends in arrears were approximately
$876,000. These were paid on July 22, 1997 (See Note 13).
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 provided 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 collateralized 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%.
The Shareholders delivered 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.
F-14
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMON STOCK (CONTINUED)
On March 27, 1997, the Company signed a Purchase Agreement
to purchase 583,331 shares of the Company's $.01 per value
common stock at $1.40 per share and 750,002 warrants at
$1.05 per warrant held by Norwood Venture Corp. (See Note
6). The terms of the agreement provide for a cash payment in
the amount of $320,833 and a six-year subordinated
promissory note in the amount of $1,283,332, bearing
interest at 10% per annum. Principal and interest totaling
$71,755 is to be paid quarterly commencing June 27, 1997
through March 27, 2003. The note also contains certain
financial covenants.
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 $82,000 and $74,000 in 1997 and 1996,
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,
-------------------------------
1997 1996
----------- -----------
Current:
Federal $ 757,000 $ 854,000
State and City 504,000 580,000
----------- -----------
1,261,000 1,434,000
Deferred:
Federal (54,000) (19,000)
State and City (37,000) (11,000)
----------- -----------
(91,000) (30,000)
Total $ 1,170,000 $ 1,404,000
=========== ===========
The following reconciles the Federal statutory rate to the
effective income tax rate:
1997 1996
------- ------
Computed tax expense at Federal
statutory rate 35 % 35 %
State and city provision,
net of Federal tax 12 13
Other (2) (1)
---- ----
45 % 47 %
==== ====
F-15
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (CONTINUED):
No valuation allowance was deemed necessary at April 30,
1997 as the Company believes that it is more likely than not
that the deferred tax asset will be fully realized based on
current projections of future pre-tax income.
The components of the Company's deferred tax assets and
liability at April 30, 1997 under SFAS 109 are as follows:
Deferred tax assets:
Tax benefit attributable to:
Allowance for doubtful accounts $ 137,000
Stock appreciation rights 115,000
Accrued incentive compensation 124,000
Inventories 86,000
Other 59,000
---------
521,000
Deferred tax liability, tax
depreciation in excess of
book depreciation (55,000)
---------
Net deferred tax asset $ 466,000
=========
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
On December 31, 1992, the Company entered into an employment
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 April 30, 2000. At April 30, 1997, the
Company has accrued $184,000 of incentive compensation and
$107,000 of accrued fringe benefits.
Various 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 the present time, 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 $1,088,000, 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.
F-16
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS:
On June 26, 1997, the Company entered into an agreement to
purchase various assets totaling $285,200, of which $150,000
was paid upon closing and the balance of $135,200 is payable
quarterly through August 2000, with interest at 10%. In
connection with this agreement, the Company entered into a
Consulting and Noncompetition Agreement with the President
of the Company from whom the assets were acquired, which
requires $65,000 to be paid at closing and the balance of
$325,000 to be paid quarterly over a three year period.
On June 11, 1997, the Board of Directors declared payable
all of the cumulative dividends in arrears on the Series A
Preferred Stock which approximated $905,000. These dividends
were paid on July 22, 1997. In addition, 50% of the payment
was used to exercise warrants which expire July 31, 1997
(See Note 6), for 377,250 shares of the Company's common
stock.
On July 22, 1997, the Company had borrowed $500,000 on its
line of credit.
On July 22, 1997, the Company entered into a Stock Exchange
Agreement for the exchange of all of the Series A preferred
stock for an aggregate of 1,149,600 shares of the Company's
common stock.
The following unaudited pro forma information for the years
ended April 30, 1997 and 1996 give effect to the Stock
Exchange Agreement as though it were effective at the
beginning of those periods.
1997 1996
---------- ----------
NET INCOME APPLICABLE TO COMMON
SHAREHOLDERS
Primary and fully diluted $1,424,000 $1,592,000
========== ==========
NET INCOME PER COMMON SHARE
Primary $ .21 $ .23
========== ==========
Fully diluted $ .21 $ .22
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES USED IN COMPUTING EARNINGS
PER SHARE
Primary 6,759,000 6,950,000
========== ==========
Fully diluted 6,857,000 7,109,000
========== ==========
On July 29, 1997, the Company obtained a waiver from Norwood
Venture Corporation regarding noncompliance with an
administrative covenant relating to the note payable.
F-17
<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, STATEMENTS OF INCOME
STATEMENTS OF STOCKHOLDERS' EQUITY AND STATEMENTS OF CASH FLOW FOR
THE PERIOD ENDED APRIL 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 2,465
<SECURITIES> 0
<RECEIVABLES> 4,340
<ALLOWANCES> 293
<INVENTORY> 1,264
<CURRENT-ASSETS> 8,557
<PP&E> 1,267
<DEPRECIATION> 692
<TOTAL-ASSETS> 9,289
<CURRENT-LIABILITIES> 1,930
<BONDS> 0
<COMMON> 54
0
1,437
<OTHER-SE> 3,351
<TOTAL-LIABILITY-AND-EQUITY> 9,289
<SALES> 15,336
<TOTAL-REVENUES> 15,336
<CGS> 8,052
<TOTAL-COSTS> 8,052
<OTHER-EXPENSES> 4,473
<LOSS-PROVISION> 148
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> 2,579
<INCOME-TAX> 1,170
<INCOME-CONTINUING> 1,409
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,409
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
