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, 1998
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 Identification No.)
incorporation or organization)
39-27 59th Street, Woodside, New York 11377
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(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (718) 899-6100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
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(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
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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-$14,145,000
The aggregate market value of the voting stock held by non-affiliates of the
Issuer, based upon the average bid and asked prices for both the Registrant's
Common Stock and Class A Common Stock (as if converted), $.01 par value per
share, as of June 30, 1998 was $3,901,864.
As of June 30, 1998, the Registrant had 6,173,154 shares of Common Stock
outstanding, and 5,643,234 shares of Class A Common Stock outstanding.
Documents incorporated by Reference: None.
<PAGE>
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This form 10-K for the year ended April 30, 1998 contains certain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995, which can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate," "should"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. The matters set forth under the captions "Management Discussion and
Analysis of Financial Condition and Results of Operations - Cautionary
Statements" herein constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain risks
and uncertainties, that could cause actual results to differ materially from
those in such forward-looking statements.
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PART I
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ITEM 1. BUSINESS
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GENERAL.
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Firecom, Inc. (the "Company") was formed as a New York corporation in March 1978
to acquire the business and operating assets of Fire Controls, Inc and
Commercial Radio-Sound Corp., which were engaged in the design and manufacture
of custom fire detection, communications and control systems for commercial
buildings and commercial audio-visual systems. The acquisition was completed in
May 1978.
Through its Fire Controls division, the Company designs, manufactures and
distributes, under the Firecom brand name, safety and security systems for high
rise office buildings, hotels, apartment buildings and other large commercial
buildings. This division also is a distributor of Life Safety and other
electronic building systems manufactured by other companies. Subsidiaries handle
the maintenance of systems sold by the Company and others.
The Company's principal executive office is located at 39-27 59th Street,
Woodside, New York 11377 and its telephone number is (718) 899-6100.
FIRE ALARM AND COMMUNICATIONS SYSTEMS
- -------------------------------------
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, 1998, revenues from the sale of the fire
alarm, communication systems and other building systems constituted
approximately 55% of the Company's consolidated revenues.
FIRECOM LIFE SAFETY NET 2000 SYSTEM
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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 system 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
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The Company designs, assembles and markets fire control systems other than the
Firecom LSN 2000 System and the Firecom 8500 System. The Company does not
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manufacture the control unit for these systems. Additionally, the Company
distributes other electronic building systems and equipment under OEM agreements
for Uninterrupted Power Supplies.
SERVICE
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The Company's life safety systems are covered by a one-year warranty. In New
York City 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, 1998, revenues earned from servicing systems
constituted approximately 45% of the Company's consolidated revenues.
MARKETING
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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. 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
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The principal customers for the Company's fire alarm and communications systems
are building owners and electrical contractors who install such systems.
The Company purchases parts for its systems from a variety of suppliers. The
Company believes that all such parts or alternate parts are available from
several sources and has not experienced any material difficulty in obtaining
supplies.
REGULATIONS
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The Company believes that it currently complies with all applicable building
codes, zoning ordinances, occupational safety and hazard standards and other
applicable federal, state and local ordinances and regulations.
COMPETITION
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The Company's businesses are highly competitive, with the price of products and
warranty terms offered by competitors being very similar to those of the
Company. The Company believes that its products perform as well or better than
those of its competitors. Some of the Company's competitors offer a broader line
of products and are better financed than the Company. Additionally, the Company
faces competition in the servicing of systems which the Company sells.
PATENT AND TRADEMARKS
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The Company holds four patents on its fire alarm products. One covers the
parallel binary system and another upgrades the parallel system to a serial
system. The serial system collects data from all sensors (emergency, energy or
security) within the building, continuously monitoring and recording the data on
a hard copy printer. The serial system could be used in facilities other than
buildings, including oil refineries, mining facilities and cable TV stations,
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for site security, to prevent off-the-wire theft of services and to monitor
interruptions in service. In addition, the system can monitor mechanical and
electrical systems on board naval and merchant vessels. The third patent on the
Company's multiplex system covers an integrated alarm, security building
management and communication system. This integrated system provides voice
communication to all emergency areas, monitors all fire alarms, security
functions--such as card access, door control, intrusion and surveillance--and
controls all lights, pumps and other building functions.
The Company has 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
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As of June 30, 1998, the Company employed approximately 123 full-time employees,
28 of whom are salaried and 95 of whom are paid on an hourly basis. With the
exception of the Company's 4 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
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As of April 30, 1998, the Company had a backlog for fire control and other
systems of approximately $2,742,000, substantially all of which it anticipates
completing in the current fiscal year. The backlog at April 30, 1997 was
approximately $2,372,000.
ITEM 2. PROPERTY
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The Company owns property and a building in Woodside, New York where it
maintains manufacturing, sales, service and engineering operations. The two
story building is fire resistant and approximately 16,000 square feet. The
underlying property is approximately one acre.
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 indicated 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, 1999. It has an annual
average rent of $30,450. The Company also leases 1,000 square feet of additional
space in Woodside, New York on a month-to-month basis, with an annual average
rent of $14,400.
ITEM 3. LEGAL PROCEEDINGS
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In the normal course of its operations, the Company has been named in various
legal actions seeking monetary damages. While the outcome of some of these
matters cannot be estimated with certainty, management does not expect, based
upon consultation with legal counsel, that they will have a material effect on
the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None
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PART II
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ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
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HOLDER MATTERS
--------------
All share information has been restated giving effect to the
distribution of Class A Common Stock (which is convertible on a share for share
basis to Common Stock) which took place on December 17, 1997, and treats the
Class A Common Stock as if converted to Common Stock. The only distinction
between the two classes is that the Common Stock has one (1) vote per share and
the Class A Common Stock has thirty (30) votes per share and generally cannot be
transferred without conversion into Common Stock (see Note 10 in the
accompanying "Notes to the Consolidated Financial Statements").
(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 1997:
First quarter $ .375 $ .344
Second quarter .532 .469
Third quarter .563 .535
Fourth quarter .563 .516
Fiscal 1998:
First quarter $ .563 $ .531
Second quarter .547 .50
Third quarter .656 .547
Fourth quarter .656 .585
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 June 30, 1998, there were 316 record holders of the
Company's Common Stock, and 279 record holders of the Company's Class A Common
Stock. The closing bid and asked prices for the Company's Common Stock on June
30, 1998 were $.51 and $.58 respectively.
(c) The Company has not paid any cash dividends on its common stock to
date, and the Company does not contemplate the payment of cash dividends in the
foreseeable future. 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
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Preferred Stock. This amount was paid on July 22, 1997. 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 CONDITION
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AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
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The following table sets forth items in the Consolidated Statements of
Income as a percentage of sales:
Relationship to Net Sales
For the Years Ended April 30,
-----------------------------
1998 1997
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Net Sales 100.0% 100.0%
Cost of Sales 58.4 52.5
Selling, General and
Administrative Expenses 30.0 25.9
Research & Development 4.8 4.7
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Operating Income 6.8 16.9
Other Expense, net 0.7 0.1
Income Tax Expense 2.2 7.6
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Net Income 3.9 9.2
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1998 FISCAL YEAR COMPARED TO 1997 FISCAL YEAR
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Consolidated sales for the Company's operations decreased by approximately 8%.
The decrease in revenues reflects the continued weakness in the New York City
market place with regards to new construction of buildings and from intense
competition for new or expanded contracts and a resulting adverse pressure on
contract prices.
The backlog for our Life Safety and other systems totaled $2,742,000 at April
30, 1998, an increase of $370,000 from the backlog of April 30, 1997. Due to
fluctuations in the Company's backlog for the year ended April 30, 1998,
management remains cautious about predicting revenue in the next fiscal year.
Orders continue to be booked on the Company's fire safety system being marketed
outside of New York City, and management is encouraged about future growth in
this product category.
Selling, general and administrative expenses for the year ended April 30, 1998
increased approximately $243,000 as compared to the year ended April 30, 1997
primarily due to increases in sales and marketing expense aimed at the Company's
launching of its LSN 2000 System in the national market.
Research and development costs were $675,000 for the year ended April 30, 1998
as compared to $721,000 in the year ended April 30, 1997. These expenditures
primarily reflect the development of the LSN 2000 System and the Company's
commitment to provide its customers with state- of-the-art fire and life safety
systems.
Operating income for the 1998 fiscal year was $960,000 as compared to $2,589,000
for fiscal 1997. The decrease in operating income of 63% resulted from the
reduction in direct gross profit of approximately $900,000 from the decrease in
net sales, the higher marketing and sales costs of approximately $280,000
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associated with the introduction of the LSN 2000 System and expansion from New
York City into the national market and an increase in bad debt expense of
approximately $270,000.
Significant changes in balance sheet items from April 30, 1997 to April 30, 1998
are highlighted as follows:
1: Cash increased by $1,739,000 (71%) primarily due to net income, the
reduction in accounts receivable and the borrowing on the Revolving Loan.
2: Accounts Receivable decreased by $1,596,000 (37%) due to lower sales and
an improvement in collections.
3: Inventories increased by $237,000 (19%) primarily due to the material
requirements for the LSN 2000 System.
4: Deferred tax asset, net of deferred tax liability, increased by $140,000
(30%) due to an increase in expenses that are not currently tax deductible.
5: Prepaid expenses and other increased by $160,000, due to an increase in
prepaid income taxes.
6: Intangible assets increased due to the acquisition of certain assets
from BRD Systems, Inc.
7: Notes Payable (both current and long-term) decreased $171,000 (9%)
resulting from reductions in debt from scheduled payments partially offset
by an increase in debt due to the acquisition of certain assets from BRD
Systems, Inc.
8: Line of Credit increased by $500,000 due to borrowing on the Revolving
Loan.
9: Accrued expenses and other increased by $214,000 (24%), primarily due to
an increase in deferred revenue.
10: Accrued compensation increased $87,000 due to an increase in stock
appreciation rights.
11. The changes in Equity reflect the July 22, 1997 exchange for all of the
Series A Preferred Stock having a liquidation preference of $1,437,000 for
an aggregate of 2,299,200 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 754,500 shares of the Company's common stock.
Interest expense for fiscal 1998 was $231,000, 175% more than fiscal 1997,
primarily due to obligations incurred to repurchase Company stock and warrants
from Norwood Venture Corp. on March 27, 1997.
LIQUIDITY
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Net cash provided from operations was $2,329,000. After taking into account
funds used for the repayment of debt ($306,000), net common stock transactions
($452,000) and capital expenditures ($181,000), this resulted in a net increase
in cash of $1,389,000. The Company has a revolving line of credit up to a
maximum of $2,000,000 ($500,000 outstanding balance at April 30, 1998) and a
first mortgage note of $325,000 at April 30, 1998. These notes are
collateralized by substantially all of the Company's assets and are subject to
certain covenants. 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. As of April 30, 1998 the Company borrowed $500,000 against the line in
order to support the working capital requirements of its national expansion.
During the fiscal year ending April 30, 1999 ("Fiscal 1999"), the Company
intends to spend approximately $700,000 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
1,072,988 shares of the Company's $.01 par Value Common Stock held by certain
members of the May family (the "Shareholders") at $.45 per share. Terms of the
agreement provide for a cash payment in the amount of $174,448 and a five (5)
year note in the amount of $308,397, bearing interest at 12% per annum. Interest
is to be paid monthly. The principal is to be paid in five equal annual
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installments of $61,679. The Company's obligation under the note is
collateralized by a pledge by the Company to the noteholder of 685,326 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 1,072,988 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 $.55 per share. The Put Option is conditional upon
the Company meeting certain financial targets, which the Company did not meet.
The option date may be deferred at the option of the shareholder until September
1, 1999, provided, however, that the Company may waive the financial target
requirement thirty (30) days prior to the option date. 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 $.625 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 five (5)
year notes bearing interest at prime plus 3%. The notes issued upon purchase of
the Option Shares will be collateralized by a pledge by the Company of shares of
its Common Stock.
On March 27, 1997, the Company signed a Purchase Agreement to purchase 1,166,662
shares of the Company's $.01 per value stock at $.70 per share and 1,500,004
warrants at $.525 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 6 & 9 in the
accompanying "Notes to the Consolidated Financial Statements").
The Company's net working capital was approximately $6,557,000 at April 30,
1998. While revenues from the New York City market, where the Company
historically operated, continue to be weak, management believes that this
weakness should be offset by the 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. The current union contract expires June 30, 1999.
.COMPUTER ISSUES FOR THE YEAR 2000
- ----------------------------------
As a provider of life safety systems which are computer based, the Company is
aware of the potential problems the year 2000 could have on its computer systems
and programs. The Company has completed a review of its computer systems and
programs to determine which, if any, systems and programs are not capable of
recognizing the year 2000. The Company has concluded that all of its systems and
programs are year 2000 compliant. The computer system on which the accounting
records are kept are in the process of being updated to be year 2000 compliant.
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CAUTIONARY STATEMENTS
- ---------------------
Information or statements provided by the Company from time to time contain
certain "forward-looking information" relating to such matters as liquidity,
projected sales and anticipated margins. The cautionary statements made herein
are being made pursuant to the Private Securities Litigation Reform Act of 1995
(the "Act") and with the intention of obtaining the benefits of the "safe
harbor" provisions of the Act for any such forward-looking information. The
Company cautions readers that any forward-looking information provided by the
Company is not a guarantee of future performance and that actual results may
differ materially from those in the forward-looking information as a result of
various factors, including but not limited to the acceptance in what is a new
market for the Company, the national market (historically, the vast majority of
the Company's revenues have been derived from the New York City market) of the
Company's newly-introduced line of safety products for the national market. The
principal manufacturers against whom the Company expects to compete in the
national market are generally better financed, have products accepted in the
market and have long-established distribution and servicing networks. The
Company's future growth is to a large extent dependent on being able to complete
successfully against these competitors.
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.
PART III
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
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COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
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NAME AGE OFFICE
- -------------------------------------------------------------------------------
Paul Mendez 55 Chairman of the Board, President
and Director
Howard L. Kogen 58 Executive Vice President
Antoine J. Sayour 48 Senior Vice President
Jeffrey Cohen 41 Vice President-Finance
Peter Barotz 69 Director
Orhan I. Sadik-Khan 68 Director
Ronald A. Levin 55 Director
Hilary B. Miller 47 Director
Harry B. Levine 62 Director
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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 1997 Annual Meeting, Mr. Mendez, Mr. Barotz and
Mr. Miller were elected to serve until the 1999 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.
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 in New York City.
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.
Jeffrey Cohen joined the Company as Vice President-Finance in September 1997.
Prior to joining the Company, Mr. Cohen had been the Chief Financial Officer,
for more than eight years, of an apparel manufacturing company headquartered in
New Jersey.
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 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.
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ITEM 10. EXECUTIVE COMPENSATION
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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, 1998, to each of the executive
officers of the Company whose aggregate remuneration exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Name and Principal Fiscal Options/SAR
Position Year Salary Bonus Awards
- --------------------------------------------------------------------------------
Paul Mendez 1998 $200,000 $ 49,794 -0-
Chairman and 1997 200,000 184,031 -0-
President 1996 150,000 223,731 -0-
Howard L. Kogen 1998 $140,000 $ 19,313 -0-
Executive Vice 1997 138,000 47,186 -0-
President 1996 132,000 54,203 -0-
Antoine J. Sayour 1998 $122,955 $ 13,201 -0-
Senior Vice President 1997 118,420 32,267 -0-
1996 110,430 39,694 -0-
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
- --------------------------------------------------------------
OPTION/SAR VALUES
- -----------------
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTION/SAR'S OPTIONS/SAR'S
ACQUIRED AT FY-END (#) AT FY-END ($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Paul Mendez -0- -0- 1,000,000/ $281,461/
-0 -0
Howard L. Kogen -0- -0- 347,200/ $ 113,000
52,800 $ 13,200
Antoine J. Sayour -0- -0- 249,600/ $ 80,100/
50,400 $ 12,600
</TABLE>
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STOCK OPTIONS
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The Company adopted an Incentive and Non-Qualified Stock Option Plan (the
"Plan") which provided for the granting of not more than 1,200,000 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. Options for an aggregate of 1,114,000 shares of Common Stock at exercise
prices ranging from $0.15 to $0.625 were outstanding under the Plan as of April
30, 1998.
Included in the aggregate outstanding were options to purchase 160,660 shares at
$.625 per share issued during the fiscal year ended April 30, 1998. No options
were exercised during the fiscal year. 60,000 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 40,000 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 $61,000 as of April 30, 1998 (versus
an accrual of $55,000 at April 30, 1997) 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 1,000,000 shares of Common Stock. The Appreciation Rights are
exercisable in pro rata installments over a five-year period and have initial
value prices ("base prices") as follows: 400,000 Appreciation Rights have a base
price of $.125 per share; 200,000 Appreciation Rights have a base price of $.25
per share; 200,000 Appreciation Rights have a base price of $.50 per share; and
200,000 Appreciation Rights have a base price of $.75 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 $281,000 as
of April 30, 1998 (versus a liability of $202,000 at April 30, 1997) 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.
13
<PAGE>
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
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. Mr. 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. Mr. Sayour's employment agreement also contains a six-month
non-competition provision following the term of the agreement or any extension
thereof.
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------------------------------------------------------------
MANAGEMENT.
----------
The following table sets forth certain information as of June 30, 1998 (except
for employee stock option information which is as of April 30, 1998) 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, 1998
and (iv) the ownership interests of all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Title of Name and Address of Position Amount and Nature of % of
Class Beneficial Owner With Company Beneficial Ownership Class
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Paul Mendez Chairman of the Board 2,930,479(1)(2) 47.5%
$.01 par value 13 Coventry Road Chief Executive Officer
Livingston,, NJ and Director
Ildar Idris None 353,354(1) 5.7%
15 Horvath Strasse
Grfeling 8032,
West Germany
Carol Mendez None 1,164,250 18.9%
13 Coventry Road
Livingston, NJ
Howard L. Kogen Executive Vice 366,500(3) 6.0%
President
Antoine J. Sayour Senior Vice 269,900(4) 4.4%
President
Orhan I. Sadik-Khan Director 1(1) 0%
Hilary B. Miller Director 12,000(5) 0.2%
Ronald A. Levin Director -0- --
Peter Barotz Director -0-(1) --
Harry B. Levine Director -0- --
All executive officers 3,578,880(1)(2)(3) 58.0%
and directors as a (4)(5)
group (5 persons)
</TABLE>
15
<PAGE>
<TABLE>
Title of Name and Address of Position Amount and Nature of % of
Class Beneficial Owner With Company Beneficial Ownership Class
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Paul Mendez Chairman of the Board 2,930,479(1)(2) 51.9%
Common Stock 13 Coventry Road Chief Executive Officer
$.01 par value Livingston,, NJ and Director
Ildar Idris None 353,354(1) 6.3%
15 Horvath Strasse
Grfeling 8032,
West Germany
Carol Mendez None 1,164,250 20.6%
13 Coventry Road
Livingston, NJ
Howard L. Kogen Executive Vice 19,300(3) 0.3%
President
Antoine J. Sayour Senior Vice 20,300(4) 0.4%
President
Orhan I. Sadik-Khan Director 1(1) --
Hilary B. Miller Director 12,000(5) 0.2%
Ronald A. Levin Director -0- --
Peter Barotz Director -0-(2) --
Harry B. Levine Director -0- --
All executive officers 2,982,080(1)(2)(3) 52.8%
and directors as a (4)(5)
group (5 persons)
</TABLE>
(1) 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.
(2) Includes 536,495 shares of Common Stock and 536,495 shares of Class A Common
Stock (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 $.55 per share. This option is not exercisable at September
16
<PAGE>
1, 1998 unless the Company waives a condition that certain financial targets be
made for Fiscal 1998; if the Company decides not to waive this condition, the
option will be deferred for one year. 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 $.625 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."
(3) Includes 19,300 shares of Common Stock beneficially owned by Mr. Kogen with
his wife as joint tenants and 347,200 shares of Common Stock underlying
presently exercisable options.
(4) These shares include 20,300 shares of Common Stock beneficially owned by Mr.
Sayour with his wife as joint tenants and 249,600 of Common Stock underlying
presently exercisable options.
(5) These shares include 2,000 shares of Common Stock and 2,000 shares of Class
A Common Stock which are owned by Mr. Miller's wife, as to which he disclaims
beneficial ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
On June 21, 1995, the Company signed a Stock Purchase Agreement to purchase
1,072,988 shares of the Company's $.01 par Value Common Stock held by certain
members of the May family (the "Shareholders") at $.45 per share. Terms of the
agreement provide for a cash payment in the amount of $174,448 and a five (5)
year note in the amount of $308,397 bearing interest at 12% per annum. Interest
is to be paid monthly. The principal is to be paid in five equal annual
installments of $61,679. The Company's obligation under the note is
collateralized by a pledge by the Company to the noteholder of 685,326 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 $.55 per share. The Put Option is conditional upon the
Company meeting certain financial targets (see note 2 to tables appearing at
Item 11, above). 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 $.625 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. The Shareholders executed 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 believed it represented 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 was 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.
Multiplex Electrical Services, Inc.("Multiplex"), which is owned by the family
of Paul Mendez, is one of 72 distributors of the LSN 2000. During the fiscal
year the Company had sales of approximately $147,000 to Multiplex. Sale of the
products to Multiplex was on the same terms as other distributors. The Company
also purchased approximately $74,000 of product and engineering services from
Multiplex. The Company believes the terms and conditions of such transactions
were fair and reasonable.
17
<PAGE>
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].
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) Certificate of Amendment to Certificate of Incorporation
[incorporated by reference to Exhibit 3(I) to the Company's
Report on Form 10-Q dated October 31, 1997].
3(l) 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(m) 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
18
<PAGE>
10-K for the fiscal year ended April 30, 1987].
3(n) 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].
10(a)Employment Agreement dated as of December 31, 1992 with Paul
Mendez, and Amendment thereto dated 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 Incentive and 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)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(e)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(f)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(g)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(h)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
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FIRECOM, INC.
s/s Paul Mendez
Date: July 23, 1998 By
------------------------
Paul Mendez, Chairman of
the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated.
Signature Title Date
s/s Paul Mendez
- ------------------------------ Chairman of the Board, July 23, 1998
Paul Mendez President and Chief
Executive Officer
s/s Jeffrey Cohen
- ------------------------------ Vice-President-Finance, July 23, 1998
Jeffrey Cohen Chief Financial Officer and
Principal Accounting Officer
s/s Peter Barotz
- ------------------------------ Director July 23, 1998
Peter Barotz
s/s Hilary B. Miller
- ------------------------------- Director July 23, 1998
Hilary B. Miller
s/s Ronald A. Levin
- ------------------------------ Director July 23, 1998
Ronald A. Levin
s/s Orhan I. Sadik-Khan
- ------------------------------ Director July 23, 1998
Orhan I. Sadik-Khan
Harry B. Levine Director July 23, 1998
20
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
APRIL 30, 1998
<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-19
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, 1998, and the
related consolidated statements of income, stockholders' equity
and cash flows for the years ended April 30, 1998 and 1997.
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 consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated 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 as of April
30, 1998, and the consolidated results of their operations and
their cash flows for the years ended April 30, 1998 and 1997, in
conformity with generally accepted accounting principles.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
June 19, 1998
F-2
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,204,000
Accounts receivable, net of allowance
for doubtful accounts of $400,000 2,744,000
Inventories 1,501,000
Deferred tax asset 673,000
Prepaid expenses and other 140,000
----------
Total current assets 9,262,000
PROPERTY, PLANT AND EQUIPMENT, net 665,000
INTANGIBLE ASSETS, less accumulated
amortization of $38,000 122,000
-----------
$10,049,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 335,000
Line of credit borrowing 500,000
Accounts payable 756,000
Accrued expenses and other 1,114,000
------------
Total current liabilities 2,705,000
LONG-TERM LIABILITIES:
Notes payable 1,401,000
Accrued compensation 343,000
Deferred tax liability 67,000
------------
Total long-term liabilities 1,811,000
MANDATORY REDEEMABLE COMMON STOCK 590,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1,
authorized 1,000,000 shares,
none issued
Common stock, par value $.01,
authorized 30,000,000 shares,
issued 7,140,113, outstanding
6,109,119 71,000
Class A common stock, par value
$.01, authorized 10,000,000 shares,
issued 6,738,263, outstanding
5,707,269 67,000
Capital in excess of par value 2,764,000
Retained earnings 3,267,000
-------------
6,169,000
Less treasury stock, at cost,
1,030,994 shares of Common stock
and 1,030,994 shares of Class A
common stock 1,226,000
-------------
Total stockholders' equity 4,943,000
-----------
$10,049,000
===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended April 30, 1998 and 1997
1998 1997
---- ----
NET SALES:
Product $ 7,820,000 $ 8,813,000
Services 6,325,000 6,523,000
-------------- --------------
14,145,000 15,336,000
-------------- --------------
COST OF SALES:
Product 4,604,000 4,896,000
Services 3,689,000 3,156,000
-------------- --------------
8,293,000 8,052,000
-------------- --------------
GROSS PROFIT 5,852,000 7,284,000
-------------- --------------
OPERATING EXPENSES:
Selling, general and
administrative 4,217,000 3,974,000
Research and development 675,000 721,000
-------------- --------------
Total operating
expenses 4,892,000 4,695,000
-------------- --------------
INCOME FROM OPERATIONS 960,000 2,589,000
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income 115,000 74,000
Interest expense (231,000) (84,000)
Other 15,000
-------------- --------------
(101,000) (10,000)
-------------- --------------
INCOME BEFORE INCOME TAX
EXPENSE 859,000 2,579,000
INCOME TAX EXPENSE 305,000 1,170,000
-------------- --------------
NET INCOME $ 554,000 $ 1,409,000
============== ==============
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ 554,000 $ 1,295,000
============== ==============
NET INCOME PER COMMON SHARE
Basic $ .05 $ .13
============== ==============
Diluted $ .05 $ .11
============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES USED IN
COMPUTING NET INCOME PER
SHARE
Basic 11,130,000 9,643,000
============== ==============
Diluted 12,236,000 11,493,000
============== ==============
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended April 30, 1998 and 1997
SERIES A
PREFERRED STOCK COMMON STOCK
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
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
SERIES A
PREFERRED STOCK
DIVIDEND
CONVERSION OF
CLASS A
COMMON STOCK
TO COMMON
STOCK 200,925 2,000
CONVERSION OF
SERIES A
PREFERRED STOCK
TO COMMON
STOCK (1,200) (1,437,000) 1,149,600 11,000
WARRANTS
EXERCISED 377,250 4,000
STOCK
DIVIDEND -
ISSUANCE
OF CLASS
A COMMON STOCK
NET INCOME
------- ---------- --------- -------
BALANCES,
April 30, 1998 - $ - 7,140,113 $ 71,000
======= ========== ========= =======
CLASS A COMMON STOCK CAPITAL IN
-------------------- EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS
--------- --------- ---------- --------
BALANCES,
April 30, 1996 - $ - $ 1,593,000 $ 2,278,000
PURCHASE OF
TREASURY STOCK
AND WARRANTS (788,000)
WARRANTS
EXERCISED 85,000 87,000
NET INCOME 1,409,000
--------- -------- ---------- ---------
BALANCES,
April 30, 1997 890,000 3,687,000
SERIES A
PREFERRED
STOCK
DIVIDEND (905,000)
CONVERSION
OF CLASS A
COMMON STOCK
TO COMMON
STOCK (200,925) (2,000)
CONVERSION
OF SERIES A
PREFERRED
STOCK TO
COMMON
STOCK 1,426,000
WARRANTS
EXERCISED 448,000
STOCK DIVIDEND
- ISSUANCE
OF CLASS A
COMMON STOCK 6,939,188 69,000 (69,000)
NET INCOME 554,000
--------- -------- ---------- ---------
BALANCES,
April 30, 1998 6,738,263 $67,000 $2,764,000 $3,267,000
========= ======== ========== ==========
TREASURY STOCK
------------------------
SHARES AMOUNT TOTAL
------ ------ -----
BALANCES,
April 30, 1996 447,663 $ (410,000) $ 4,950,000
PURCHASE OF
TREASURY STOCK
AND WARRANTS 583,331 (816,000) (1,604,000)
WARRANTS
EXERCISED 87,000
NET INCOME 1,409,000
--------- ----------- ----------
BALANCES,
April 30, 1997 1,030,994 (1,226,000) 4,842,000
SERIES A
PREFERRED
STOCK
DIVIDEND (905,000)
CONVERSION
OF CLASS A
COMMON STOCK
TO COMMON
STOCK
CONVERSION
OF SERIES A
PREFERRED
STOCK TO
COMMON
STOCK
WARRANTS
EXERCISED 452,000
STOCK DIVIDEND
- ISSUANCE
OF CLASS A
COMMON STOCK 1,030,994
NET INCOME 554,000
--------- ----------- ----------
BALANCES,
April 30, 1998 2,061,988 $(1,226,000) $4,943,000
========= =========== ==========
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended April 30, 1998 and 1997
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 554,000 $ 1,409,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 209,000 154,000
Provision for doubtful accounts 417,000 148,000
Amortization of loan fees 22,000 10,000
Deferred income tax credit (140,000) (91,000)
Increase (decrease) in cash
attributable to changes in
assets and liabilities:
Accounts receivable 1,254,000 (771,000)
Inventories (192,000) (112,000)
Prepaid expenses and other (58,000) (71,000)
Accounts payable 64,000 185,000
Accrued expenses and other 214,000 (63,000)
Income taxes payable (102,000) (101,000)
Accrued compensation 87,000 152,000
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,329,000 849,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and
equipment (181,000) (203,000)
Acquisition of business (150,000)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (331,000) (203,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (306,000) (112,000)
Proceeds from line of credit borrowing 500,000
Proceeds from the sale of common stock 452,000 87,000
Payment for preferred stock dividends (905,000)
Payments for the purchase of
treasury stock (321,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (259,000) (346,000)
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,739,000 300,000
CASH AND CASH EQUIVALENTS:
Beginning of year 2,465,000 2,165,000
----------- -----------
End of year $4,204,000 $2,465,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Years Ended April 30, 1998 and 1997
1998 1997
---- ----
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for interest during
the year $ 241,000 $ 76,000
=========== ===========
Cash paid for income taxes during
the year $ 630,000 $ 1,244,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Note payable issued for the purchase
of treasury stock and warrants $ $ 1,283,000
=========== ===========
Note payable issued for acquisition
of business $ 135,000 $
=========== ===========
Issuance of Class A Common Stock
dividend $ 69,000 $
=========== ===========
Conversion of Series A Preferred
Stock to Common Stock $ 1,437,000 $
=========== ===========
Conversion of Class A Common Stock
to Common Stock $2,000 $
=========== ===========
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., FRCM Case-Acme, Inc. and BRD FRCM Service, 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 "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.
INTANGIBLE ASSETS -- Customer lists, software, drawings
and design approvals are amortized using the straight-
line method over the estimated useful lives of the
assets ranging from three to five years.
ADVERTISING COSTS -- The Company expenses costs of
advertising and promotion as incurred. Advertising
expenses included in selling, general and
administrative expenses for the years ended April 30,
1998 and 1997 were approximately $156,000 and $142,000,
respectively.
F-8
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED):
INCOME TAXES -- The Company complies with Statement of
Financial Accounting Standards No. 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 the 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 expected to be realized.
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 in which they
become known.
EFFECT OF COMMON STOCK DIVIDEND -- All earnings per
share information and all share information in these
notes have been restated giving effect to the
distribution of Class A Common Stock (which is
convertible on a share for share basis to Common Stock)
which took place on December 17, 1997 (see Note 10).
The only distinction between the two classes is that
the Common Stock has one (1) vote per share and the
Class A Common Stock has thirty (30) votes per share
and generally cannot be transferred without conversion
into Common Stock. Unless otherwise indicated, all
references to Common Stock and Class A Common Stock
throughout these notes are collectively referred to as
Common Stock.
NET INCOME PER COMMON SHARE -- Effective January 31,
1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share"
(SFAS No. 128). SFAS No. 128 requires dual
presentation of basic and diluted income per share for
all periods presented. Basic income per share excludes
dilution and is computed by dividing income available
to common stockholders by the weighted-average number
of common shares outstanding during the period.
Diluted income 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 income of the
Company. Prior period income per share information has
been restated as required by SFAS No. 128.
F-9
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED):
A reconciliation of the income and weighted-average
shares used in both calculations follows:
YEAR ENDED APRIL 30, 1998
-------------------------
Income Shares EPS
------ ------ ---
Basic EPS
Net income applicable
to common shareholders $ 554,000 11,130,000 $ .05
Effect of stock options and
warrants -- 1,106,000 --
----------- ---------- ------
Diluted EPS
Net income applicable to
common shareholders $ 554,000 12,236,000 $ .05
=========== ========== ======
YEAR ENDED APRIL 30, 1997
-------------------------
Income Shares EPS
------ ------ ---
Net income $ 1,409,000
Less: Preferred Stock
dividend (114,000)
-----------
Basic EPS
Net income applicable
to common shareholders 1,295,000 9,643,000 $ .13
Effect of stock options and
warrants -- 1,850,000 (.02)
----------- ---------- ------
Diluted EPS
Net income applicable to
common shareholders $ 1,295,000 11,493,000 $ .11
=========== ========== ======
Unexercised employee stock options to purchase 160,660
shares of the Company's Common Stock as of April 30,
1998 were not included in the computation of diluted
EPS because the options' exercise prices were greater
than the average market price of the Company's Common
Stock.
F-10
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED):
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.
NOTE 2 - ACQUISITION:
In June 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, in the form of a note, quarterly
through August 2000, with interest at 10%.
NOTE 3 - INVENTORIES:
Inventories consist of the following at April 30, 1998:
Raw materials and sub-assemblies $ 1,493,000
Work-in-process 8,000
-----------
$ 1,501,000
===========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following
at April 30, 1998:
Leasehold improvements $ 303,000
Machinery and equipment 688,000
Furniture and fixtures 497,000
-----------
1,488,000
Less accumulated depreciation
and amortization 823,000
-----------
$ 665,000
===========
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.
F-11
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - ACCRUED EXPENSES AND OTHER:
Accrued expenses and other consist of the following at
April 30, 1998:
Vacation $ 240,000
Incentive compensation 101,000
Payroll 118,000
Fringe benefits 193,000
Deferred revenue 103,000
Other 359,000
-----------
$ 1,114,000
===========
NOTE 6 - NOTES PAYABLE:
Notes payable consist of the following at April 30,
1998:
Interest
Rate
--------
Note payable to May Family,
pursuant to Stock Purchase
Agreement, (See Note 9) in
annual installments of
$61,679, plus interest,
through June 2000 12% $ 185,000
Note payable to Norwood Venture
Corp., pursuant to Purchase
Agreement, (See Note 9) in
quarterly installments of
$71,755, including interest,
through March 2003 10% 1,118,000
First mortgage note payable in
monthly installments of $4,333,
plus interest, through July 1999
and collateralized by
substantially all of the Company's
assets 10.2% 325,000
Note payable to BRD Systems, Inc.,
pursuant to acquisition of certain
assets, in quarterly installments
of $12,310, including interest,
through August 2000 10% 108,000
----------
1,736,000
Less current portion 335,000
----------
$1,401,000
==========
F-12
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE (CONTINUED):
The notes are subordinated to the first mortgage note.
Aggregate future principal payments are as follows:
Years ending April 30:
1999 $ 335,000
2000 579,000
2001 307,000
2002 245,000
2003 270,000
--------
$1,736,000
==========
The Company has a line of credit of up to $2,000,000 based
on levels of eligible accounts receivable and inventories,
with interest at the prime lending rate, which expires in
July 1999. The balance outstanding at April 30, 1998 is
$500,000. At April 30, 1998, the prime interest rate was
8.5%. The borrowing under the line of credit is
collateralized by substantially all of the Company's assets.
The line of credit and first mortgage note payable contain
certain covenants.
NOTE 7 - 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 1,200,000 shares.
Information relating to the stock options under the Plan
during the years ended April 30, 1998 and 1997 is as
follows:
Number Per Share
of Shares Option Price
--------- ------------
Outstanding at April 30,
1996 991,340 $.15-.30
Granted 102,000 .375
Expired (80,000) .15-.30
--------- ---------
Outstanding at April 30,
1997 1,013,340 .15-.375
Granted 160,660 .625
Expired (60,000) .375
--------- ---------
Outstanding at April 30,
1998 1,114,000 $.15-.625
========= =========
Exercisable at April 30,
1997 662,460 $ .15-.30
========== =========
Exercisable at April 30,
1998 753,820 $.15-.375
========== =========
The exercise price of the above options approximated or
exceeded fair market value at the date of grant.
F-13
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS
(CONTINUED):
The Company has adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation". The
Company applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its plans.
Had compensation cost for the plan been determined based on
the fair value at the grant dates, consistent with SFAS No.
123, the Company's net income applicable to common
shareholders and net income per share applicable to common
shareholders would have been adjusted to the pro forma
amounts indicated below:
Year Ended April 30,
--------------------
1998 1997
-------- ----------
Net income applicable to
common shareholders:
As reported $554,000 $1,295,000
Proforma 543,000 1,292,000
Net income per share applicable
to common shareholders:
Basic, as reported .05 .13
Diluted, as reported .05 .11
Basic, pro forma .05 .13
Diluted, pro forma .04 .11
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants
in 1998 and 1997 respectively: risk-free interest rate of
6%; no dividend yield; expected lives of 10 years; and
expected volatility of approximately 44% and 43%,
respectively.
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 price (as defined in the agreements). The
following summarizes the SARs, which have been adjusted to
reflect the stock dividend (see Notes 1 and 10), at April
30, 1998:
Rights Rights Base
Granted Exercisable Price FMV
------- ----------- ------ -----
(A) 400,000 400,000 $.125 $.60
(A) 200,000 200,000 .25 .60
(A) 200,000 200,000 .50 .60
(A) 200,000 200,000 .75 .60
(B) 40,000 40,000 .47 .60
(B) 40,000 40,000 .60 .60
(B) 120,000 120,000 .14 .60
(A) These rights have been granted pursuant to an agreement
with the Chairman of the Board of the Company and are
exercisable in pro rata installments over a five-year
period. All unexercised rights will expire in December
2002.
F-14
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS
(CONTINUED):
(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 $86,000 and $182,000 for the years ended
April 30, 1998 and 1997, respectively, for compensation as a
result of the SARs. As of April 30, 1998, 40,000 rights
have been exercised amounting to approximately $30,000
pursuant to the SARs. At April 30, 1998, the Company has
accrued compensation of approximately $343,000 as a result
of the SARs.
WARRANTS - In 1987, in connection with an acquisition, the
Company issued warrants to purchase 1,000,000 shares of the
Company's Common Stock with an exercise price, as amended,
of $.60 per share. The warrants were exercisable beginning
July 31, 1987 for a period of ten years of which warrants to
purchase 754,000 shares of Common Stock were exercised on
July 22, 1997. Upon redemption of the Series A Preferred
Stock (See Note 8) by the Company, a proportionate number of
the warrants terminated.
As a result of repaying the convertible notes on July 8,
1994, the rights to purchase 2,666,666 shares of Common
Stock were converted into warrants with an exercise price of
$.175 per share. The warrants were exercisable immediately
with 166,666 expiring quarterly beginning June 1995 through
March 1999. As of April 30, 1998, warrants to purchase
1,166,662 shares of Common Stock were exercised, of which
all were repurchased by the Company along with the remaining
1,500,004 warrants (See Note 9).
NOTE 8 - SERIES A PREFERRED STOCK:
The Series A Preferred Stock was issued to a company owned
by certain directors of the Company and was redeemable at
the Company's option for $1,197.50 per share plus accrued
dividends.
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 would have
expired July 31, 1997 (See Note 7), for the purchase of
754,500 shares of the Company's Common Stock.
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 2,299,200 shares of the Company's
Common Stock.
NOTE 9 - COMMON STOCK:
On June 21, 1995, the Company signed a Stock Purchase
Agreement to purchase 1,072,988 shares of the Company's $.01
par value Common Stock held by certain members of the May
Family (the "Shareholders") at $.45 per share. Terms of the
agreement provided for a cash payment in the amount of
$174,448 and a five-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 685,326 shares of the Company's Common Stock.
F-15
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMON STOCK (CONTINUED):
At the same time, the Company and the Shareholders entered
into an Option and Escrow Agreement relative to an
additional 1,072,988 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 $.55 per share. The Put Option is conditional
upon the Company meeting certain financial targets, which
the Company has not met. The option date may be deferred
at the option of the shareholder until September 1, 1999,
provided, however, that the Company may waive the financial
target requirement thirty (30) days prior to the option
date. 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 $.625 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 five-year notes bearing interest at
prime plus 3%. The notes issued upon purchase of the Option
Shares will be collateralized by a pledge by the Company of
shares of its Common Stock. 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 March 27, 1997, the Company signed a Purchase Agreement
to purchase 1,166,662 shares of the Company's $.01 par value
Common Stock at $.70 per share and 1,500,004 warrants at
$.525 per warrant held by Norwood Venture Corp. (See Note
7). 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 through March 2003. The
note also contains certain financial covenants.
NOTE 10 - STOCK DIVIDEND:
The Company approved an amendment of the Corporation's
Certificate of Incorporation to (i) authorize new Class A
Common Stock consisting of 10,000,000 shares and having
thirty (30) 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 at the close of business on
December 5, 1997. The dividend shares were 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, entitles the holders to vote together
with the holders of the Common Stock as a single class and
to cast thirty (30) 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. The Class A Common Stock participates in the
earnings of the Company on the same basis as the Common
Stock.
F-16
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - 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 $108,000 and $82,000 in 1998 and 1997,
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 12 - INCOME TAXES:
The provision for income taxes consists of the following:
Year Ended April 30,
-------------------------
1998 1997
--------- -----------
Current:
Federal $ 215,000 $ 757,000
State and City 230,000 504,000
--------- -----------
445,000 1,261,000
--------- -----------
Deferred:
Federal (81,000) (54,000)
State and City (59,000) (37,000)
--------- ----------
(140,000) (91,000)
---------- ----------
Total $ 305,000 $1,170,000
========= ==========
The following reconciles the Federal statutory rate to the
effective income tax rate:
1998 1997
------- --------
Computed tax expense at
Federal statutory rate 34% 34%
State and city provision,
net of Federal tax 13 12
Increasing research activities
tax credit (7)
Other (4) (1)
------- -------
36% 45%
======= =======
F-17
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES (CONTINUED):
The components of the Company's deferred tax asset and
liability at April 30, 1998 are as follows:
Deferred tax assets:
Allowance for doubtful accounts $ 184,000
Stock appreciation rights 158,000
Accrued incentive compensation 29,000
Inventories 116,000
Vacation and other fringe benefits 173,000
Other 13,000
---------
673,000
Deferred tax liability, tax depreciation
in excess of book depreciation 67,000
---------
Net deferred tax asset $ 606,000
=========
No valuation allowance was deemed necessary at April 30,
1998 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 taxable income.
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
The Company has certain employment agreements with key
executives expiring through April 2000. Aggregate annual
compensation under these agreements approximates $470,000.
In connection with the purchase of certain assets (See Note
2), the Company entered into a Consulting and Non-
competition Agreement with the President of the Company from
whom the assets were acquired, and have continuing payment
requirements of $25,000 per quarter through September 2000.
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 consolidated financial position, consolidated
results of operations or consolidated cash flows.
NOTE 14 - CONCENTRATION OF CREDIT RISK:
The Company's cash and cash equivalents, including
certificates of deposit of approximately $1,310,000, are
maintained in a financial institution, and at times exceed
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-18
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SUBSEQUENT EVENT
On May 6, 1998, the Board of Directors authorized a stock
option plan for qualified distributors of the Company's
products, who make average annual equipment purchases over a
three-year period of at least $100,000. Distributors may be
granted an option for one share of common stock for each $10
of average annual equipment purchases, with an exercise
price equal to the market price of the stock on the date of
grant.
F-19
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27.1 Financial Data Schedule to Form 10-KSB
dated April 30, 1998
27.2 Restated Financial Data Schedule to
Form 10-KSB dated April 30, 1997
27.3 Restated Financial Data Schedule to
Form 10-KSB dated April 30, 1996
<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 YEAR ENDED APRIL 30, 1998, 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-30-1998
<PERIOD-END> APR-30-1998
<CASH> 4,204
<SECURITIES> 0
<RECEIVABLES> 3,144
<ALLOWANCES> 400
<INVENTORY> 1,501
<CURRENT-ASSETS> 9,262
<PP&E> 1,488
<DEPRECIATION> 823
<TOTAL-ASSETS> 10,049
<CURRENT-LIABILITIES> 2,705
<BONDS> 0
<COMMON> 138
0
0
<OTHER-SE> 4,805
<TOTAL-LIABILITY-AND-EQUITY> 10,049
<SALES> 14,145
<TOTAL-REVENUES> 14,145
<CGS> 8,293
<TOTAL-COSTS> 8,293
<OTHER-EXPENSES> 4,460
<LOSS-PROVISION> 417
<INTEREST-EXPENSE> 116
<INCOME-PRETAX> 859
<INCOME-TAX> 305
<INCOME-CONTINUING> 554
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 554
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
<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>
<RESTATED>
<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> .13
<EPS-DILUTED> .11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FIRECOM, INC.'S CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME AND
STATEMENT OF CASH FLOW FOR THE PERIOD ENDED APRIL 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 2,165
<SECURITIES> 0
<RECEIVABLES> 4,036
<ALLOWANCES> 319
<INVENTORY> 1,152
<CURRENT-ASSETS> 7,483
<PP&E> 1,064
<DEPRECIATION> 588
<TOTAL-ASSETS> 8,116
<CURRENT-LIABILITIES> 1,785
<BONDS> 0
<COMMON> 52
0
1,437
<OTHER-SE> 3,461
<TOTAL-LIABILITY-AND-EQUITY> 8,116
<SALES> 14,884
<TOTAL-REVENUES> 14,884
<CGS> 7,713
<TOTAL-COSTS> 7,713
<OTHER-EXPENSES> 3,831
<LOSS-PROVISION> 259
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> 2,966
<INCOME-TAX> 1,404
<INCOME-CONTINUING> 1,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,562
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>
