SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-QSB-QUARTERLY OR TRANSITIONAL REPORT
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the quarterly period ended October 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NUMBER 0-12873
-------
FIRECOM, INC.
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer in its charter)
New York 13-2934531
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
39-27 59th Street, Woodside, New York 11377
- ------------------------------------- -----
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (718) 899-6100
Indicate by check mark whether the Registrant (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
--- ---
As of December 1, 1997, the Registrant had 5,908,194 shares of Common
Stock outstanding.
1
<PAGE>
INDEX
PAGE NO.
---------
PART I FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheet-October 31, 1997 3-4
Consolidated Statements of Income-
Three Months and Six Months Ended
October 31, 1997 and 1996 5
Consolidated Statements of Cash Flows-
Six Months Ended October 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-9
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-10
PART II OTHER INFORMATION 10-11
2
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
OCTOBER 31, 1997
----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,623,000
Accounts receivable, net of allowance for doubtful
accounts of $319,000 3,239,000
Inventories 1,767,000
Deferred tax asset 466,000
Prepaid expenses and other 98,000
----------
Total current assets $8,193,000
----------
FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT $1,320,000
Less: Accumulated Depreciation & Amortization 744,000
----------
Total Fixed Assets $ 576,000
----------
OTHER ASSETS
Product Enhancement $ 668,000
Less: Accumulated Amortization 463,000
----------
Total Product Enhancement $ 205,000
Prepaid Loan Fees $ 17,000
----------
Total Other Assets $ 222,000
----------
TOTAL ASSETS $8,991,000
==========
3
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
OCTOBER 31, 1997
----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 325,000
Accounts payable 611,000
Revolving Loan - Chase Bank 500,000
Accrued expenses 607,000
----------
Total current liabilities $2,043,000
----------
LONG-TERM LIABILITIES:
Notes payable $1,540,000
Accrued compensation 229,000
----------
Total Long-Term liabilities $1,769,000
----------
MANDATORY REDEEMABLE COMMON STOCK 590,000
----------
SHAREHOLDERS' EQUITY
Preferred Stock, par value $1;
authorized 1,000,000 shares, none issued $ -0-
Common Stock, par value $.01:
Authorized 10,000,000 shares
Issued: 6,939,188 Outstanding: 5,908,194 69,000
Additional Paid-In Capital 2,765,000
Retained Earnings 2,981,000
----------
Sub-Total $5,815,000
Less: Treasury Stock, at cost, 1,030,994 shares 1,226,000
----------
Total Shareholders' Equity $4,589,000
----------
TOTAL LIABILITIES & EQUITY $8,991,000
==========
4
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------------------------
OCTOBER 31 OCTOBER 31
------------ -------------
1997 1996 1997 1996
---- ----- ---- ----
<S> <C> <C> <C> <C>
NET SALES:
Product $ 1,785,000 $ 2,451,000 $ 3,241,000 $ 4,358,000
Service 1,694,000 1,693,000 3,244,000 3,291,000
----------- ----------- ----------- -----------
Total Sales 3,479,000 4,144,000 6,485,000 7,649,000
----------- ----------- ----------- -----------
COST OF SALES:
Product 1,165,000 1,289,000 2,144,000 2,369,000
Service 826,000 794,000 1,605,000 1,569,000
----------- ----------- ----------- -----------
Total Cost of Sales 1,991,000 2,083,000 3,749,000 3,938,000
----------- ----------- ----------- -----------
GROSS PROFIT 1,488,000 2,061,000 2,736,000 3,711,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 982,000 1,075,000 2,012,000 1,996,000
Research and development 140,000 219,000 293,000 368,000
----------- ----------- ----------- -----------
Total operating expenses 1,122,000 1,294,000 2,305,000 2,364,000
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 366,000 767,000 431,000 1,347,000
----------- ----------- ----------- -----------
OTHER EXPENSES (INCOME)
Interest 26,000 13,000 73,000 21,000
Other (24,000) 65,000 (27,000) 87,000
----------- ----------- ----------- -----------
Total Other Expenses (Income) 2,000 78,000 46,000 108,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX 364,000 689,000 385,000 1,239,000
INCOME TAX EXPENSE 171,000 386,000 181,000 645,000
NET INCOME $ 193,000 $ 303,000 $ 204,000 $ 594,000
=========== =========== =========== ===========
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ 193,000 $ 273,000 $ 204,000 $ 538,000
NET INCOME PER COMMON SHARE $ .03 $ .05 $ .04 $ .09
WEIGHTED AVERAGE NUMBER OF
SHARES USED IN COMPUTING EPS 6,171,000 5,745,000 5,494,000 5,720,000
</TABLE>
5
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 31
----------
1997 1996
------ -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 204,000 $ 594,000
----------- -----------
Adjustments to reconcile net income to net
Cash used in operating activities:
Depreciation and amortization 82,000 47,000
Provision for doubtful accounts 26,000 123,000
Deferred income tax credits -0- -0-
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,075,000 (693,000)
(Increase) in inventories (503,000) (404,000)
(Increase) in other current and noncurrent assets (11,000) (37,000)
Increase (decrease) in accounts payable,
accrued expenses & other (507,000) 490,000
----------- -----------
Total adjustments 162,000 (474,000)
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 366,000 120,000
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (78,000) (88,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (177,000) (88,000)
Increase in debt 500,000 -0-
Preferred Stock Dividend (905,000) -0-
Proceeds from stock issue 452,000 58,000
----------- -----------
NET CASH (USED IN) FINANCING ACTIVITIES (130,000) (30,000)
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 158,000 2,000
CASH AND CASH EQUIVALENTS:
Beginning of year 2,465,000 2,165,000
----------- -----------
End of six months $ 2,623,000 $ 2,167,000
=========== ===========
NON-CASH INVESTING ACTIVITY:
Debt incurred as a result of
acquisition of assets $ 135,000 --
===========
</TABLE>
6
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: ACCOUNTING POLICIES:
The accounting policies followed by the Company are set forth in Note
1 of the Company's financial statement on Form 10-KSB for the fiscal
year ended April 30, 1997.
In the opinion of management the accompanying consolidated financial
statements contain the necessary adjustments, all of which are of a
normal and recurring nature, to present fairly Firecom Inc. and its
subsidiaries' financial position at October 31, 1997 and the results
of operations and cash flows for the three and six months ended
October 31, 1997 and 1996, and statement of cash flows for the six
months ended October 31, 1997 and 1996.
NOTE 2: INVENTORIES
Inventories consist of the following at October 31, 1997:
Raw materials and sub-assemblies $1,760,000
Work-in-process 7,000
----------
$1,767,000
==========
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at
October 31, 1997:
Building improvements $ 268,000
Machinery and equipment 590,000
Furniture and fixtures 462,000
----------
$1,320,000
Less accumulated depreciation and amortization 744,000
----------
$ 576,000
==========
NOTE 4: NOTES PAYABLE
The Company's long-term debt consists of the
following at October 31, 1997:
Notes payable to banks and other:
First mortgage note payable $ 351,000
Note payable to Norwood Venture 1,203,000
Note payable to May Family 185,000
Other note payable 126,000
----------
$1,865,000
Less current portion 325,000
----------
$1,540,000
==========
On June 26, 1997, the Company acquired certain service contracts
and intellectual property rights from a New York supplier of Life
Safety systems. The purchase price was $285,200. $150,000 was
7
<PAGE>
paid at closing of the acquisition. The balance of the purchase
price, $135,000, is payable quarterly through August 2000, with
interest of 10% per annum.
On July 22, 1997, the Company borrowed $500,000 on its revolving
line of credit with the Chase Manhattan Bank primarily to support
the increased inventory level of its National Product.
NOTE 5: INCOME TAXES
The components of the Company's deferred tax assets and liabilities at
August 31, 1997 under SFAS 109 are as follows:
Deferred Assets:
Tax benefit attributable to:
Allowance for doubtful accounts $ 137,000
Stock appreciation rights 115,000
Accrued incentive bonuses 124,000
Inventories 86,000
Other 59,000
--------
521,000
Deferred tax liability, tax
depreciation in excess of book depreciation (55,000)
---------
$466,000
========
NOTE 6: STOCKHOLDERS' EQUITY 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 $308,397,
bearing interest at 12% per annum. Interest is payable monthly. The
principal is to be paid in five equal annual installments of $61,679.
The purchase of these shares was completed on July 18, 1995. The
Company's obligation under the note is 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 536,495 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 execution
of this agreement, 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.
On July 22, 1997, the Company exchanged 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.
On June 11, 1997, the Board of Directors declared 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
expired on July 31, 1997 for 377,250 share of the Company's common
stock.
8
<PAGE>
NOTE 7: 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
October 31, 1997, the Company has accrued $140,000 of incentive
compensation and $122,000 of accrued fringe benefits.
NOTE 8: SUBSEQUENT EVENT:
The Company approved an amendment to the Corporation's Certificate of
Incorporation to (i) authorize a new class of Class A common stock
consisting of 10,000,000 shares and having thirty votes per share and
(ii) to increase the aggregate number of shares of Common Stock the
Corporation is authorized to issue from 10,000,000 to 30,000,000.
The Company declared a share dividend on its Common Stock, par value
$.01 per share (the "Common Stock"), payable in shares of the newly
authorized Class A Common Stock, par value $.01 per share (the "Class
A Common Stock"), at the rate of one share of the Class A Common Stock
for each share of the Common Stock issued and outstanding at the close
of business on December 5, 1997. The dividend shares will be issued on
December 17, 1997.
The Class A Common Stock, which was authorized by shareholders of the
Company at an annual meeting held on November 18, 1997, entitle the
holders to vote together with the holders of the Common Stock as a
single class and to cast thirty votes per share. Shares of the Class A
Common Stock are non-transferable, but convertible at any time at the
option of the holder into the Company's regular Common Stock.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
LIQUIDITY
Net cash provided by operations for the six months ended October 31,
1997 was $366,000 primarily due to a decrease in accounts receivable,
a decrease in accounts payable and accrued expenses, which were
partially offset by increases in inventories. The Company's revolving
financing agreement with a major New York bank, dated July 8, 1994,
was amended on April 1, 1996. This amendment provided the Company with
a revolving line of credit not to exceed $2 million (there was an
outstanding balance of $500,000 as of October 31, 1997) and a first
mortgage note of $429,000 at April 30, 1996 (the balance was $351,000
as of October 31, 1997). These loan facilities are collateralized by
substantially all of the Company's assets and are subject to certain
covenants.
Availability of funds under the terms of revolving line of credit is
based on eligible accounts receivable and inventory. The initial
commitment for $2 million, under the terms of the note, is reduced by
$500,000 each six months commencing on October 1, 1999.
Management believes that it will be able to maintain adequate working
capital and cash balances to meet its current needs.
RESULTS OF OPERATIONS
Consolidated sales and net income for the quarter ended October 31,
1997 were $3,479,000 and $193,000 respectively as compared to
$4,144,000 and $303,000 for the quarter ended October 31, 1996.
9
<PAGE>
Consolidated sales and net income for the six months ended October 31,
1997 were $6,485,000 and $204,000 respectively as compared to
$7,649,000 and $594,000 for the six months ended October 31, 1997.
Sales declined by 15% during the six months ending October 31, 1997
versus the same period last year. These lower sales reflect the lower
backlog of orders as of April 30, 1997 versus the same period in 1996
which was due to the poor new construction environment and highly
competitive New York market for fire protection systems and services.
The Company's backlog for its life safety and other systems totaled
$2,445,000 at October 31, 1997 as compared to $1,853,000 at April 30,
1997. The increase in the Company's backlog during the first six
months is encouraging but management remains cautious about predicting
continued growth in the fiscal year. Orders continue to be booked on
the Company's fire safety system being marketed outside of New York
City, and management is very encouraged about future growth in this
product category.
Operating income for the six months ended October 31, 1997 was
$431,000 as compared to $1,347,000 for the six months ended October
31, 1996. As a percentage of revenue, the operating income for the six
months ended October 31, 1997 was 6.6% versus 17.6% in the same period
in 1996. The decrease in operating income and its percentage to
revenue was primarily due to the decline in revenues and gross profit
on the Company's life safety and service businesses and higher sales
and marketing costs to support the National Product.
Significant changes in balance sheet items from April 30, 1997 to
October 31, 1997 are highlighted as follows:
1: Cash increased primarily to the borrowing on the Revolving
Loan. Accounts receivable decreased due to lower sales and an
improvement in collections.
2: Inventories increased as a result of stocking requirements for
the National Product.
3: The decrease in accrued expenses reflect a decline in pretax
income and the resulting decline in the management bonus accrual
and accrued corporate taxes.
4: The changes in Equity reflect the July 22, 1997 exchange 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 and the payment of the cumulative
dividends in arrears on this stock of approximately $905,000. 50%
of the payment of the cumulative dividend was used to exercise
warrants for 377,250 shares of the Company's common stock.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
The Certificate of Incorporation of the Company was amended in
November 1997 to authorize the issuance of a Class A Common
Stock which would vote with the Common Stock but on the basis
of thirty votes per share of Class A Common and one vote per
share of ordinary Common Stock. The Series A Common Stock is
being distributed on December 17, 1997 to holders of ordinary
Common Stock on a share-for-share basis. Reference is hereby
made to Exhibit 3(i) hereto for the full terms of the relative
rights of these classes.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) (c) At the Annual Meeting of the Shareholders of the Company
held on November 18, 1997, the shareholders approved an
amendment to the Company's Certificate of Incorporation to
(i) authorize a new class of common stock consisting of tem
million shares and having 30 votes per share and (ii)
increase the number of shares of Common Stock which the
Company is authorized to issue from ten million to 30
million shares. The votes cast were 4,586,699 shares in
favor, 110,800 shares against and 49,392 abstentions or
broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 3(i) Certificate of Amendment to Certificate of
Incorporation, filed November 1997.
SIGNATURES
----------
Firecom, Inc.
-------------
Dated: December 8, 1997 /s/ Paul Mendez
-------------------- ------------------------
Paul Mendez
Chairman of the Board
President and Chief Executive Officer
/s/ Jeffrey Cohen
-------------------------
Jeffrey Cohen
Vice President-Finance,
Chief Financial Officer, and
Principal Accounting Officer
11
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
EXHIBIT 3(i) CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION,
FILED NOVEMBER 1997
EXHIBIT 27 FINANCIAL DATA SCHEDULE
Exhibit 3(i)
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
FIRECOM, INC.
(Under Section 805 of the Business Corporation Law)
FIRST: The name of the corporation is FIRECOM, INC. (the
"Corporation").
SECOND: The Certificate of Incorporation of the Corporation
was filed by the Department of State on March 16, 1978.
THIRD: The Certificate of Incorporation, as now in force
and effect, is hereby amended to effect the following changes as
authorized by Section 801 of the New York Business Corporation
Law:
A. To increase the number of shares which the
Corporation shall have the authority to issue; and
B. To authorize a new class of common stock.
FOURTH: To accomplish the foregoing amendments, the
Certificate of Incorporation of the Corporation, as now in force
and effect, is hereby amended by deleting Article FOURTH thereof
and substituting in lieu thereof the following:
FOURTH: A. Authorized Shares. The total number
-----------------
of shares of all classes of stock which the Corporation
shall have authority to issue is 41,000,000 shares, which
shall consist of (i) 1,000,000 shares, par value $1.00 per
share, of a class designated "Preferred Stock," (ii)
30,000,000 shares, par value $.01 per share, of a class
designated "Common Stock" and (iii) 10,000,000 shares, par
value $.01 per share, of a class designated "Class A Common
Stock".
B. Preferred Stock. Shares of the Preferred
-----------------
Stock may be issued from time to time in series and the
Board of Directors of the Corporation is hereby authorized,
subject to the limitations provided by law, to establish and
designate series of the Preferred Stock, to fix the number
of shares constituting each series, and to fix the
designations and the relative rights, preferences and
limitations of the shares of each series and the variations
and the relative rights, preferences and limitations as
between series, and to increase the number of shares
constituting each series. The authority of the Board of
Directors of the Corporation with respect to each series
shall include but shall not be limited to the authority to
determine the following:
I. The designation of such series.
II. The number of shares initially
constituting such series.
III. The increase of the number of
shares constituting such series theretofore fixed.
IV. The rate or rates and the times at which
dividends on the shares of such series shall be paid,
and whether or not such dividends shall be cumulative,
and, if such dividends shall be cumulative, the date or
dates from and after which they shall accumulate;
provided, however, that if the stated dividends are not
paid in full, the shares of all series of the Preferred
Stock shall share ratably in the payment of dividends,
including accumulations, if any, in accordance with the
sums which would be payable on such shares if all
dividends were declared and paid in full.
V. Whether or not the shares of such series
shall be redeemable, and, if such shares shall be
redeemable, the terms and conditions of such
redemption, including but not limited to the date or
dates upon or after which such shares shall be
redeemable and the amount per share which shall be
payable upon such redemption, which amount may vary
under different conditions and at different redemption
dates.
VI. The amount payable on the shares of such
series in the event of the voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation; provided, however, that the holders of
such shares shall be entitled to be paid, or to have
set apart for payment, not less than $1.00 per share
before the holders of shares of the Common Stock or the
holders of any other class of stock ranking junior to
the Preferred Stock as to rights on liquidation shall
be entitled to be paid any amount or to have any amount
set apart for payment; provided, further, that, if the
amounts payable on liquidation are not paid in full,
the shares of all series of the Preferred Stock shall
share ratably in any distribution of assets other than
by way of dividends in accordance with the sums which
would be payable in such distribution if all sums
payable were discharged in full. A liquidation,
dissolution or winding up of the Corporation, as such
terms are used in this Paragraph VI, shall not be
deemed to be occasioned by or to include any
consolidation or merger of the Corporation with or into
any other corporation or corporations or a sale, lease
or conveyance of all or a part of its assets.
VII. Whether or not the shares of such
series shall have voting rights, in addition to the
voting rights provided by law, and, if such shares
shall have such voting rights, the terms and conditions
thereof, including but not limited to the right of the
holders of such shares to vote as separate class either
alone or with the holders of shares of one or more
other series of Preferred Stock and the right to have
more than one vote per share.
VIII. Whether or not a sinking fund shall
be provided for the redemption of the shares of such
series, and, if such a sinking fund shall be provided,
the terms and conditions thereof.
IX. Whether or not a purchase fund shall be
provided for the shares of such series, and, if such a
purchase fund shall be provided, the terms and
conditions thereof.
X. Whether or not the shares of such series
shall have conversion privileges, and, if such shares
shall have conversion privileges, the terms and
conditions of conversion, including but not limited to
any provision for the adjustment of the conversion rate
or the conversion price.
XI. Any other relative rights, preferences
and limitations.
C. Common Stock. Any and all shares of
------------
Common Stock and Class A Common Stock constituting
authorized but unissued shares may be issued for such
consideration, not less than the par value thereof, as shall
be fixed from time to time by the Board of Directors. The
powers, preferences, limitations and relative rights of the
Common Stock and the Class A Common Stock shall be as
follows:
1. VOTING. Except as may otherwise be
required by law or except as may be expressly provided
for herein, with respect to all matters upon which
shareholders are entitled to vote or to which
shareholders are entitled to give consent, the holders
of the outstanding shares of Common Stock and the
holders of the outstanding shares of Class A Common
Stock shall vote together as a single class, and every
holder of an outstanding share of Common Stock shall be
entitled to cast thereon one (1) vote in person or by
proxy for each share of Common Stock standing in his
name on the stock transfer records of the Corporation,
and every holder of an outstanding share of Class A
Common Stock shall be entitled to cast thereon thirty
(30) votes in person or by proxy for each share of
Class A Common Stock standing in his name on the stock
transfer records of the Corporation.
2. DIVIDENDS AND DISTRIBUTIONS.
(a) DIVIDENDS. Holders of Common Stock
and Class A Common Stock shall be entitled to share
ratably in all such dividends, payable in cash or
otherwise, as may be declared thereon by the Board of
Directors from time to time out of assets or funds of
the Corporation legally available therefor except that
in the case of dividends or other distributions payable
in stock of the Corporation, including distributions
pursuant to stock split-ups or divisions, which occur
after the initial distribution of the Class A Common
Stock to holders of Common Stock, only shares of Common
Stock shall be distributed with respect to the Common
Stock, and only shares of Class A Common Stock shall be
distributed with respect to the Class A Common Stock.
(b) DISTRIBUTIONS. In the event the
Corporation shall be liquidated (either partial or
complete), dissolved or wound up, whether voluntarily
or involuntarily, the holders of the Common Stock and
the Class A Common Stock shall be entitled to share
ratably, as a single class, in the remaining net assets
of the Corporation; that is, an equal amount of net
assets for each share of Common Stock and Class A
Common Stock.
(c) MERGER OR CONSOLIDATION. In the
event of a merger or consolidation of the Corporation
with or into another entity whether or not the
Corporation is the surviving entity), the holders of
Common Stock and Class A Common Stock shall be entitled
to receive the same per share consideration in such
merger or consolidation.
3. RESTRICTIONS ON TRANSFER OF THE
CLASS A COMMON STOCK.
(a) No beneficial owner (as hereinafter
defined) of shares of Class A Common Stock (hereinafter
referred to as a "Class A Shareholder") may transfer,
and the Corporation shall not register the transfer of,
shares of Class A Common Stock of such Class A
Shareholder, whether by sale, assignment, gift,
bequest, appointment or otherwise, except to a
Permitted Transferee of such Class A Shareholder. A
"Permitted Transferee" shall be defined as (i) the
Class A Shareholder; (ii) the spouse of the Class A
Shareholder; (iii) any parent and any lineal descendant
(including any adopted child) of any parent of the
Class A Shareholder or of the Class A Shareholder's
spouse; (iv) any trustee, guardian or custodian for, or
any executor, administrator or other legal
representative of the estate of, any of the foregoing
Permitted Transferees; (v) the trustee of a trust
(including a voting trust) principally for the benefit
of such Class A Shareholder and/or any of his or her
Permitted Transferees; (vi) the beneficiary of a trust,
individual retirement account or other similar Class A
Shareholder; and (vii) any corporation, partnership or
other entity if a majority of the beneficial ownership
thereof is held by the Class A Shareholder and/or any
of his or her Permitted Transferees. If a Class A
Shareholder and all of his or her Permitted Transferees
cease, for whatever reason, to hold a majority of the
beneficial ownership of any corporation, partnership or
other entity specified in clause (vi) above, then any
and all shares of Class A Common Stock held by such
corporation, partnership or other entity shall
automatically, without further deed or action by or on
behalf of any party, be deemed to have been transferred
to other than a Permitted Transferee with the result
that such shares shall be deemed to have been converted
into a like number of shares of Common Stock.
(b) Notwithstanding anything to the
contrary set forth herein, any Class A Shareholder may
pledge his shares of Class A Common Stock to a pledgee
pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the
pledgee, provided that such shares shall not be
transferred to or registered in the name of the pledgee
and shall remain subject to the provisions of this
Paragraph 3. In the event of foreclosure, realization
or other similar action by the pledgee, such pledged
shares of Class A Common Stock may only be transferred
to a Permitted Transferee of the pledgor or converted
into shares of Common Stock, as the pledgee may elect.
(c) Any purported transfer of shares of
Class A Common Stock not permitted hereunder shall be
void and of no effect. Any purported transferee of
shares of Class A Common Stock purported to be
transferred in violation of this Paragraph 3 shall have
no rights as a shareholder of the Corporation and no
other rights against, or with respect to, the
Corporation, except the right to receive shares of
Common Stock upon the conversion of his or her shares
of Class A Common Stock into shares of Common Stock.
The Corporation and its transfer agent may, as a
condition to the transfer or the registration of a
transfer of shares of Class A Common Stock to a
purported Permitted Transferee, require the furnishing
of such affidavits or other proof as they deem
necessary to establish that such transferee is a
Permitted Transferee.
(d) The Corporation shall note on the
certificates for shares of Class A Common Stock the
restrictions on transfer and registration of transfer
imposed by this Paragraph 3.
(e) Shares of Class A Common Stock
shall be registered in the name(s) of the beneficial
owner(s) thereof (as herein defined) and not in
"street" or "nominee" names; provided, however,
certificates representing shares of Class A Common
Stock issued in the initial distribution thereof to
holders of the issued and outstanding Common Stock may
be registered in the same name and manner as the
certificates representing the shares of Common Stock
with respect to which the shares of Class A Common
Stock are issued. Any shares of Class A Common Stock
registered in "street" or "nominee" name may be
transferred to the beneficial owner of such shares on
the record date for such initial distribution, upon
proof satisfactory to the Corporation and the Transfer
Agent that such person was in fact the beneficial owner
of such shares on such record date.
(f) For the purpose of this Paragraph
3, the term "beneficial owner(s)" of any shares of
Class A Common Stock shall mean a person or persons
who, or entity or entities which, have or share the
power, either singly or jointly, to direct the voting
or disposition of such shares; for the avoidance of
doubt the beneficiary of an individual retirement
account ("IRA") shall be deemed the beneficial owner of
any shares held by such IRA.
4. CONVERSION OF THE CLASS A COMMON
STOCK.
(a) Each share of Class A Common Stock
may at any time or from time to time, at the option of
the record holder thereof, be converted into one (1)
fully paid and nonassessable share of Common Stock.
Such conversion right shall be exercised by the
surrender of the certificate representing such share of
Class A Common Stock to be converted to the Corporation
at any time during normal business hours at the
principal executive offices of the Corporation (to the
attention of the Secretary of the Corporation), or if
an agent for the registration or transfer of shares of
Class A Common Stock is then duly appointed and acting
(said agent being referred to in this Article IV as the
"Transfer Agent"), then at the office of the Transfer
Agent, accompanied by a written notice of the election
by the holder thereof to convert and (if so required by
the Corporation or the Transfer Agent) by instruments
of transfer, in form satisfactory to the Corporation
and to the Transfer Agent, duly executed by such holder
or his duly authorized attorney, and transfer tax
stamps or funds therefor, if required pursuant to
Paragraph 4(e) below.
(b) As promptly as practicable after
the surrender for conversion of a certificate
representing shares of Class A Common Stock in the
manner provided in Paragraph 4(a) above, and the
payment in cash of any amount required by the
provisions of Paragraph 4(e), the Corporation will
deliver or cause to be delivered at the office of the
Transfer Agent to, or upon the written order of, the
holder of such certificate, a certificate or
certificates representing the number of full shares of
Common Stock issuable upon such conversion, issued in
such name or names as such holder may direct. Such
conversion shall be deemed to have been made
immediately prior to the close of business on the date
of the surrender of the certificate representing shares
of Class A Common Stock, and all rights of the holder
of such shares as such holder shall cease at such time
and the person or persons in whose name or names the
certificate or certificates representing the shares of
Common Stock are to be issued shall be treated for all
purposes as having become the record holder or holders
of such shares of Common Stock at such time; provided,
however, that in the event any such surrender and
payment are made on any date when the stock transfer
records of the Corporation shall be closed, the person
or persons in whose name or names the certificate or
certificates representing shares of Common Stock are to
be issued will become the record holder or holders
thereof for all purposes immediately prior to the close
of business on the next succeeding day on which such
stock transfer records are open.
(c) No adjustments in respect of
dividends or other distributions shall be made upon the
conversion of any share of Class A Common Stock;
provided, however, that if a share shall be converted
subsequent to the record date for the payment of a
dividend or other distribution on shares of Class A
Common Stock but prior to such payment, the registered
holder of such share at the close of business on such
record date shall be entitled to receive the dividend
or other distribution payable on such share on the date
set for payment of such dividend or other distribution
notwithstanding the conversion thereof or the
Corporation's default in payment of the dividend or
distribution due on such date.
(d) The Corporation covenants that it
will at all times reserve and keep available, solely
for the purpose of issuance upon conversion of the
outstanding shares of Class A Common Stock, such number
of shares of Common Stock as shall be issuable upon the
conversion of all such outstanding shares; provided,
that nothing contained herein shall be construed to
preclude the Corporation from satisfying its
obligations in respect of the conversion of the
outstanding shares of Class A Common Stock by delivery
of purchased shares of Common Stock which are held in
the treasury of the Corporation. The Corporation
covenants that if any shares of Common Stock required
to be reserved for purposes of conversion hereunder
require registration with or approval of any
governmental authority under any federal or state law
before such shares of Common Stock may be issued upon
conversion, the Corporation will cause such shares to
be duly registered or approved, as the case may be.
The Corporation will endeavor to list the shares of
Common Stock required to be delivered upon conversion
prior to such delivery upon each national securities
exchange or automated quotation system, if any, upon
which the outstanding Common Stock is listed at the
time of such delivery. The Corporation covenants that
all shares of Common Stock which shall be issued upon
conversion of the shares of Class A Common Stock will,
upon issue, be fully paid and nonassessable and not
subject to any preemptive rights.
(e) The issuance of certificates for
shares of Common Stock upon conversion of shares of
Class A Common Stock shall be made without charge for
any stamp or other similar tax in respect of such
issuance. However, if any such certificate is to be
issued in a name other than that of the record holder
of the share or shares of Class A Common Stock
converted, the person or persons requesting the
issuance thereof shall pay to the Corporation the
amount of any tax which may be payable in respect of
any transfer involved in such issuance or shall
establish to the satisfaction of the Corporation that
such tax has been paid.
(f) The outstanding shares of Class A
Common Stock shall be deemed without further act on
anyone's part to be immediately and automatically
converted into shares of Common Stock, and stock
certificates formerly representing outstanding shares
of Class A Common Stock shall thereupon and thereafter
be deemed to represent a like number of shares of
Common Stock if and when the number of issued and
outstanding shares of Class A Common Stock is less than
one percent (1%) of the aggregate number of shares of
Common Stock and Class A Common Stock then outstanding.
5. SUBSEQUENT ISSUANCES OF CLASS A
COMMON STOCK. Following the initial distribution of
the Class A Common Stock to the holders of the issued
and outstanding Common Stock of the Corporation, the
Board of Directors may only issue shares of the Class A
Common Stock in the form of a distribution or
distributions pursuant to a stock dividend on or
split-up of the shares of the Class A Common Stock and
only to the then record holders of the issued and
outstanding shares of the Class A Common Stock in
conjunction with and in the same ratio as a stock
dividend on or split-up of the shares of the Common
Stock.
6. PREEMPTIVE RIGHTS DENIED. No
holder of shares of any class of stock of the
Corporation shall possess any preemptive right to
acquire additional shares of any class or treasury
shares of the Corporation. or obligations of the
Corporation convertible into such shares. whether now
or hereafter authorized.
FIFTH: The foregoing amendments of the Certificate of
Incorporation of the Corporation as herein provided for were duly
authorized by the vote of the holders of a majority of all
outstanding shares entitled to vote thereon at a meeting of
shareholders.
IN WITNESS WHEREOF, we have subscribed this document on
the date set forth below and do hereby affirm, under the
penalties of perjury, that the statements contained herein have
been examined by us and are true and correct.
Date: November 18, 1997
/s/ Paul Mendez
----------------------------------
Paul Mendez, Chairman of the Board
/s/ Gregory Katz
---------------------------------
Gregory Katz, Secretary
<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 OCTOBER 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> OCT-31-1997
<CASH> 2,623
<SECURITIES> 0
<RECEIVABLES> 3,558
<ALLOWANCES> 319
<INVENTORY> 1,767
<CURRENT-ASSETS> 8,193
<PP&E> 1,320
<DEPRECIATION> 744
<TOTAL-ASSETS> 8,991
<CURRENT-LIABILITIES> 2,043
<BONDS> 0
<COMMON> 69
0
0
<OTHER-SE> 4,520
<TOTAL-LIABILITY-AND-EQUITY> 8,991
<SALES> 6,485
<TOTAL-REVENUES> 6,485
<CGS> 3,749
<TOTAL-COSTS> 3,749
<OTHER-EXPENSES> 2,073
<LOSS-PROVISION> 205
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 385
<INCOME-TAX> 181
<INCOME-CONTINUING> 204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
