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, 2000
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-$19,308,000
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, 2000 was $4,315,270.
As of June 30, 2000, the Registrant had 5,782,985 shares of Common Stock
outstanding, and 4,960,413 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-KSB for the year ended April 30, 2000 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 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 manufactures 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.
During the fiscal year ended April 30, 2000, revenues from the sale of fire
alarm, communication systems and other building systems constituted
approximately 57% of the Company's consolidated revenues.
The Firecom LSN 2000 System represents what management believes to be 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 is completely
backward compatible to upgrade the older Firecom 8500 System as well as designed
to meet the needs of the national market.
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
manufacture the control unit for these other systems.
SERVICE
-------
The Company's life safety systems are covered by a one-year warranty. The
Company offers service contracts covering such systems during and after the
warranty period. Several other companies compete with the Company for the
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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, 2000, revenues earned from servicing systems
constituted approximately 43% of the Company's consolidated revenues.
MARKETING
---------
The Company's fire alarm, communication and other building systems are sold in
the New York area through an in-house sales and marketing department. Much of
the Company's new business arises because building owners, electrical
contractors and professional engineers in the New York City area who are
familiar with the Company generally include the Company on project bidding
lists.
Firecom began marketing the LSN 2000 System in January of 1997 in New York City
and the rest of the country. The Company markets the LSN 2000 through a network
of subsidiaries, regional managers, sales representatives and distributors.
The Company's service contracts are sold through an in-house sales and marketing
department.
CUSTOMERS AND SUPPLIERS
-----------------------
The principal customers for the Company's fire alarm and communications systems
are 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 such parts or alternate parts are available from several
sources. The Company is not currently experiencing 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
---------------------
The Company holds four patents on its fire alarm products. One covers the
parallel binary system and another upgrades the parallel system to a serial
system. The serial system collects data from all sensors (emergency, energy or
security) within the building, continuously monitoring and recording the data on
a hard copy printer. The serial system could be used in facilities other than
buildings, including oil refineries, mining facilities and cable TV stations,
for site security, to prevent off-the-wire theft of services and to monitor
interruptions in service. In addition, the system can monitor mechanical and
electrical systems on board naval and merchant vessels. The third patent on the
Company's multiplex system covers an integrated alarm, security building
management and communication system. This integrated system provides voice
communication to all emergency areas, monitors all fire alarms, security
functions--such as card access, door control, intrusion and surveillance--and
controls all lights, pumps and other building functions.
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The Company has a patent pending on its LSN 2000 System.
The Company has several trademarks, including the name "Firecom" and "Technology
Protecting Life," that are registered with the United States Patent and
Trademark Office.
EMPLOYEES
---------
As of June 30, 2000, the Company employed approximately 137 full-time employees,
37 of whom are salaried and 100 of whom are paid on an hourly basis. The Company
has 27 employees who work outside of the Woodside, New York facility, of which
17 employees work for subsidiaries outside of New York. The majority of
remaining employees are regional managers for its LSN2000 System and research
and development employees. The Company believes its relationship with its
employees is satisfactory. The Company suffered a strike with its union
personnel from July 1, 1999 through July 9, 1999, as part of an action with the
industry bargaining group. The new collective bargaining agreement entered into
following such strike will run for three years.
BACKLOG
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As of April 30, 2000, the Company had a backlog for fire control and other
systems of approximately $2,548,000, substantially all of which it anticipates
completing in the current fiscal year. The backlog at April 30, 1999 was
approximately $2,420,000.
ITEM 2. PROPERTY
----------------
The Company owns property and a building in Woodside, New York where it
maintains manufacturing, sales, service and engineering operations. The
two-story building is fire resistant and approximately 15,000 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 1999 independent appraisal indicated a current value
of the property of approximately $850,000. The Company leases various locations,
all under 5,000 square feet, with an aggregate annual rental charge of
approximately $152,000.
In June 2000, the Company entered into a lease agreement for approximately
16,000 square feet located in Edgewood, New York, with an aggregate annual
rental charge of approximately $130,000. The Company intends to consolidate
several of its current leases into this new facility.
ITEM 3. LEGAL PROCEEDINGS
-------------------------
Intellisec, a California corporation v. Firecom, Inc., a purported corporation;
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Rosendin Electric. Inc., a purported corporation; Does 1 through 25,
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Inclusive, Case No. BC 216249
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The Complaint was filed on September 3, 1999, in the Los Angeles Superior Court,
Central District. The principal parties are Intellisec, Rosendin and Firecom.
L.A. Arena Company, Ltd., a limited partnership has been added as a defendant.
Rosendin is a contractor for a construction project in Los Angeles, California.
On or about August 28, 1998, Intellisec entered into a written Subcontract
Agreement to furnish and install complete and operational fire life safety,
smoke control and mechanical test panel systems for the project. Intellisec
alleges that, with respect to Rosendin, there were substantial delays caused by
failure of other contractors and/or subcontractors as well as change orders such
that Intellisec is owed in excess of $1,000,000 by Rosendin. Intellisec also
claims that Rosendin and Firecom agreed and conspired between themselves to take
over the work from Intellisec and to prevent Intellisec from obtaining a
contract for maintenance services for the systems and equipment upon completion
of the project.
Firecom denies there was any such conspiracy or arrangement and contends that
Intellisec failed to pay for product delivered to it, failed to have the
necessary manpower or trained technicians for the project and that the removal
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of Intellisec from the job by Rosendin was done solely by Rosendin and was the
result of Intellisec's own actions or inaction. The Complaint seeks compensatory
damages against Firecom based on information and belief in an amount in excess
of $1,000,000, interest thereon and costs of suit. In addition, the Complaint
seeks punitive or exemplary damages from Firecom (in California a plaintiff may
not allege a specific amount for punitive damages). On October 29, 1999, Firecom
filed an Answer denying liability and a Cross-Complaint against Intellisec. The
Cross-Complaint seeks compensatory damages for breach of contract and money had
and received in an amount in excess of $200,000 together with interest and costs
of suit. On February 8, 2000, the Court granted Firecom's motion to dismiss or
stay Intellisec's complaint on December 23, 1999. Pursuant to the Court's Order,
the action was stayed pending resolution of the claims in a New York forum
pursuant to the parties' contractual forum selection clause.
Based on the three orders staying each of the California actions as to Firecom,
on June 16, 2000, Intellisec filed an action in the United States District
Court, Eastern District of New York, entitled Intellisec, Aria Kozak and Donna
Kozak, Plaintiffs v. Firecom, Inc., Defendant, Case No, 00-3557.
The Complaint contains claims for relief for Declaratory Relief, Breach of
Contract/ Specific Performance, Breach of Contract/ Damages, Breach of the
Implied Covenant of Good Faith and Fair Dealing, Intentional Interference with
Contract and Intentional Interference with Prospective Economic Advantage,
Violation of California Civil Code sections 1790 et seq.. Negligent
Misrepresentation, Implied Indemnity, Equitable Indemnity, Contribution and
Injunctive Relief. The claims set forth in the Complaint relate to the three
actions filed by Intellisec in California and, in addition to equitable relief,
seek compensatory, punitive and exemplary damages in an undetermined amount.
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
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(a) The Company's Common Stock is traded in the over-the-counter market.
The following table shows the high and low bid quotations for the Company's
Common Stock for the quarters indicated.
CLOSING BID
HIGH LOW
Fiscal 1999:
First quarter $ .51 $ .51
Second quarter .52 .46
Third quarter .565 .46
Fourth quarter .48 .43
Fiscal 2000:
First quarter $ .53 $ .46
Second quarter .61 .52
Third quarter .65 .61
Fourth quarter 1.02 .65
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, 2000, there were 272 record holders of the Company's
Common Stock, and 367 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, 2000
were $.71875 and $.74 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.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
---------------------
The following table sets forth items in the Consolidated Statements of
Income as a percentage of sales:
Relationship to Net Sales
For the Years Ended April 30,
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2000 1999
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Net Sales 100.0% 100.0%
Cost of Sales 58.2 62.3
Selling, General and
Administrative Expenses 27.0 21.9
Research & Development 4.9 4.0
--- ---
Operating Income 9.9 11.8
Other (Income) Expense, net (0.1) 0.2
Income Tax Expense 3.9 5.2
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Net Income 6.1 6.4
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2000 FISCAL YEAR COMPARED TO 1999 FISCAL YEAR
---------------------------------------------
Consolidated sales for the Company's operations increased by approximately 11%.
The higher sales reflect an increase in service revenue.
The backlog for our Life Safety and other systems totaled $2,548,000 at April
30, 2000, an increase of $128,000 from the backlog of April 30, 1999. Due to
fluctuations in the Company's backlog for the year ended April 30, 2000,
management remains cautious about predicting revenue in the next fiscal year.
Orders continue to be booked for 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, 2000
increased approximately $1,416,000 as compared to the year ended April 30, 1999
primarily due to increases in stockholders appreciation rights, bad debt
expenses, profit sharing and employee stock option expense.
Research and development costs were $945,000 for the year ended April 30, 2000
as compared to $702,000 in the year ended April 30, 1999. The increase of
$243,000 is primarily due to increases in labor, inventory used for research and
development and Underwriter Laboratories costs. 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 2000 fiscal year was $1,916,000 as compared to
$2,044,000 for fiscal 1999. The decrease in operating income of 6% resulted from
the increase in sales and gross profit percentage, offset by an increase in
selling, general and administrative expenses and research and development costs.
The increase in gross profit percentage was primarily due to an increase in
service revenue that has a higher gross profit percentage than product sales.
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Significant changes in balance sheet items from April 30, 1999 to April 30, 2000
are highlighted as follows:
1: Cash increased by $317,000 (8%) primarily due to profits earned
during fiscal 2000.
2: Accounts Receivable increased by $447,000 (12%) primarily due to
increased sales.
3: Inventories increased by $130,000 (7%) primarily due to the
material requirements for the LSN 2000 System.
4: Deferred tax asset, net of deferred tax liability, increased by
$312,000 (48%) due to an increase in expenses that are not currently
tax deductible.
5: Prepaid expenses and other current assets decreased by $31,000
(13%), due to a decrease in prepaid insurance.
6: Intangible assets decreased due to the amortization of certain
assets acquired from BRD Systems, Inc.
7: Notes Payable (both current and long-term) decreased $358,000 (25%)
resulting from reductions in debt from scheduled payments.
8: Accounts payable, accrued expenses and other current liabilities
decreased by $43,000 (2%).
9: Accrued compensation increased $254,000 (108%) due to an increase
in value of stock appreciation rights.
10. The increase in Stockholders Equity of $1,304,000 (22%) primarily
is due to the Net Income after Taxes.
Interest expense for fiscal 2000 was $187,000, 18% less than fiscal 1999.
LIQUIDITY
---------
Net cash provided from operations was $881,000. After taking into account funds
used for the repayment of debt ($358,000) and capital expenditures ($206,000),
this resulted in a net increase in cash of $317,000. The Company has a revolving
line of credit up to a maximum of $5,000,000 ($800,000 outstanding balance at
April 30, 2000). The line of credit is collateralized by substantially all of
the Company's assets excluding real estate, and is subject to certain covenants.
There are restrictions on the payment of dividends in the Company's loan
documents.
During the fiscal year ending April 30, 2001 ("Fiscal 2001"), the Company
intends to spend approximately $1,000,000 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.
The Company's net working capital was approximately $7,576,000 at April 30,
2000. 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 July 9, 2002.
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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
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None.
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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
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Paul Mendez 57 Chairman of the Board, President
and Director
Howard L. Kogen 60 Chief Operating Officer/ Executive
Vice President
Antoine J. Sayour 50 Senior Vice President
Jeffrey Cohen 43 Vice President-Finance
Peter Barotz 71 Director
Orhan I. Sadik-Khan 70 Director
Ronald A. Levin 57 Director
Richard G. Scurry, Jr. 62 Director
Harry B. Levine 64 Director
Directors hold office for a period of two years from the Annual Meeting of
Shareholders at which they are elected or until their successors are duly
elected and qualified. At the 1998 Annual Meeting, Mr. Sadik-Khan, Mr. Ronald
Levin and Mr. Harry Levine were elected to serve until the 2000 Annual Meeting.
At the 1999 Annual Meeting, Mr. Mendez, Mr. Barotz and Mr. Scurry were elected
to serve until the 2001 Annual Meeting.
Paul Mendez was elected a Director, Chairman of the Board and President on July
19, 1991. He is also a principal and 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, and
is a distributor of LSN-2000.
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 Chairman of New England Business Group and
Mideastonline.com. Mr. Sadik-Kahn is also a Director of Imagine Tile.
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Ronald A. Levin, since 1991, has been a partner in the certified public
accounting firm of Levin, Bartlett & Co., Franklin Lakes, New Jersey.
Richard G. Scurry, Jr., is a partner in Jefferson Financial Partners, working as
an Investment Manager. Previously, Mr. Scurry was employed as a registered
broker with Sanford C. Bernstein & Co., Inc., working in the Investment
Management and Research Department.
Harry B. Levine has served as President of Levine Securities, Inc. for more than
seven 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 an Audit Committee of Mr. Levin and a Compensation
Committee comprised of Messrs. Scurry, Barotz and Sadik-Kahn.
The Registrant is not aware of any Section 16(a) filing deficiencies.
ITEM 10. EXECUTIVE COMPENSATION
-------------------------------
The following table sets forth certain information with respect to cash
compensation paid or accrued by the Company, for services rendered to the
Company during the fiscal year ended April 30, 2000, 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
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Paul Mendez 2000 $200,000 $ 165,239 -0-
Chairman and 1999 200,000 123,809 -0-
President 1998 200,000 49,794 -0-
Howard L. Kogen 2000 $157,087 $43,398 -0-
Chief Operating Officer/ 1999 145,000 31,416 -0-
Executive Vice President 1998 140,000 19,313 -0-
Antoine J. Sayour 2000 $135,807 $ 33,470 -0-
Senior Vice President 1999 126,873 21,465 -0-
1998 122,955 13,201 -0-
Jeffrey Cohen 2000 $109,615 $ 26,905 -0-
Vice President-Finance 1999 98,077 15,000 -0-
1998 52,135 15,000 -0-
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
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OPTION/SAR VALUES
-----------------
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
---- -------------- -------- ------------- -------------
Paul Mendez -0- -0- 1,000,000/ $401,900/
-0 -0-
Howard L. Kogen -0- -0- 400,000/ $217,450
-0- $ -0-
Antoine J. Sayour -0- -0- 300,000/ $161,138/
-0- $ -0-
Jeffrey Cohen -0- -0- 28,000/ $ 4,788/
72,000 $ 14,325
STOCK OPTIONS
-------------
The Company adopted an Incentive and Non-Qualified Stock Option Plan (the
"Plan") which provided for the granting of not more than 1,700,000 shares of
Common Stock. The Plan is open to officers, directors and certain employees of
the Company and will expire on April 30, 2008. 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 1,146,000 shares of Common Stock at exercise
prices ranging from $0.15 to $0.625 were outstanding under the Plan as of April
30, 2000.
Included in the aggregate outstanding were options to purchase 20,000 shares at
$.56 per share issued during the fiscal year ended April 30, 2000. No options
were exercised during the fiscal year. 28,000 options were cancelled during the
fiscal year.
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 $87,000 as of April 30, 2000 (versus
an accrual of $42,000 at April 30, 1999) 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
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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. The Company
recorded a total liability of approximately $402,000 as of April 30, 2000
(versus a liability of $192,000 at April 30, 1999) in respect of these rights.
EMPLOYMENT AGREEMENTS
---------------------
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 $200,000 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 $37,000. To the extent that the aggregate value of such
benefits does not exceed $37,000, Mr. Mendez may elect to receive the
differential in cash or applied to other fringe benefits of his selection.
The Company entered into an extension of an employment agreement with Mr. Mendez
effective May 1, 2000 and expiring April 30, 2001. In consideration of his
services as Chairman of the Board and Chief Executive Officer of the Company,
(i) Mr. Mendez is to receive an annual salary of $300,000 effective May 1, 2000
and (ii) fringe benefits increased to $41,000 per year.
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.
14
<PAGE>
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.
The Company entered into an extension of an employment agreement with Mr. Kogen
effective May 1, 2000 and expiring April 30, 2005. 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 $170,000 effective May 1, 2000
with annual raises thereafter and (ii) 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. Upon the expiration of his employment agreement, Mr. Kogen
received an option to sell his stock and stock options back to the Company. The
purchase price of the stock and stock options will be at a price equal to the
difference between the exercise price of the stock options and the fair market
value of the underlying stock. The agreement provides for a fair market value
floor of $.75 and a fair market value ceiling of $1.25. The purchase price is
payable on a deferred basis over three years. The stock options, which were due
to expire in 2001, were extended to 2008.
The Company entered into an extension of an employment agreement with Mr. Sayour
effective May 1, 2000 and expiring April 30, 2005. In consideration of his
services as Senior Vice President of the Company, (i) Mr. Sayour is to receive
an annual salary of $147,000 effective May 1, 2000 with annual raises thereafter
and (ii) 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. The
stock options, which were due to expire in 2001, were extended to 2008.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
------------------------------------------------------------
MANAGEMENT.
----------
The following table sets forth certain information as of June 30, 2000 (except
for employee stock option information which is as of April 30, 2000) 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, 2000
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 2,530,483(1) 43.8%
$.01 par value 39-27 59th Street Chief Executive Officer
Woodside, NY and Director
Ildar Idris None 353,334(1) 6.1%
15 Horvath Strasse
Grfeling 8032,
West Germany
15
<PAGE>
Carol Mendez None 1,164,250 20.1%
39-27 59th Street
Woodside, NY
Howard L. Kogen Chief Operating Officer/ 419,300(2) 7.3%
Executive Vice President
Antoine J. Sayour Senior Vice 320,300(3) 5.5%
President
Jeffrey Cohen Vice President-Finance 28,000(4) .5%
Orhan I. Sadik-Khan Director 51,500(1) .9%
Richard G. Scurry, Jr. Director -0- ---
Ronald A. Levin Director -0- ---
Peter Barotz Director -0-(1) ---
Harry B. Levine Director 5,000 .1%
All executive officers 3,303,083(1)(2)(3) 57.1%
and directors as a (4)
group (6 persons)
</TABLE>
<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>
Class A Paul Mendez Chairman of the Board 2,530,483(1) 51.0%
Common Stock 39-27 59th Street Chief Executive Officer
$.01 par value Woodside, NY and Director
Ildar Idris None 353,334(1) 7.1%
15 Horvath Strasse
Grfeling 8032,
West Germany
Carol Mendez None 1,164,250 23.5%
39-27 59th Street
Woodside, NY
Howard L. Kogen Chief Operating Officer/ 19,300(2) 0.4%
Executive Vice President
Antoine J. Sayour Senior Vice 20,300(3) 0.4%
President
16
<PAGE>
Jeffrey Cohen Vice President-Finance -0-(4) --
Orhan I. Sadik-Khan Director 51,500(1) 1.0%
Richard G. Scurry, Jr. Director -0- --
Ronald A. Levin Director -0- --
Peter Barotz Director -0-(1) --
Harry B. Levine Director 5,000 .1%
All executive officers 2,575,083(1)(2)(3) 51.9%
and directors as a (4)
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, Sadik-Kahn Family Trust (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 19,300 shares of Common Stock beneficially owned by Mr. Kogen with
his wife as joint tenants and 400,000 shares of Common Stock underlying
presently exercisable options.
(3) These shares include 20,300 shares of Common Stock beneficially owned by Mr.
Sayour with his wife as joint tenants and 300,000 of Common Stock underlying
presently exercisable options.
(4) Includes 28,000 shares of Common Stock underlying presently exercisable
options for Mr. Cohen.
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 family of the late George May 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.
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.
In September 1998, pursuant to an Option and Escrow Agreement, the Company
repurchased from the May family an additional 536,494 shares of Common Stock and
536,494 shares of its Class A Common Stock (which were retired) at an agreed
upon price of $.575 per share. A cash payment in the amount of $308,485 was paid
17
<PAGE>
and five, five-year notes, in the cumulative amount of $308,485, bearing
interest at 11.5% per annum were issued. Principal payments on the notes will be
made in five equal, cumulative installments of $61,697. Interest on the notes is
to be paid monthly. The notes are collateralized by the repurchased shares of
the Company's Common Stock which are held in escrow.
Multiplex Electrical Services, Inc.("Multiplex"), which is owned by the family
of Paul Mendez, is a distributor of the LSN 2000. During the fiscal year the
Company had sales of approximately $260,000 to Multiplex. Sale of the products
to Multiplex was on the same terms as other distributors. The Company also
purchased approximately $41,000 of product and engineering services from
Multiplex. The Company believes the terms and conditions of such transactions
were fair and reasonable.
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
18
<PAGE>
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 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 Annual 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 Annual Report on Form 10-Kdated April 30, 1995].
19
<PAGE>
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].
10(i) Loan Agreement dated as of April 29, 1999 among the Company., FRCM
Case Acme Inc., Fire Service Inc., BRD FRCM Service, Inc. and Fleet
Bank, N.A. (incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-KSB dated April 30, 1999).
10(j) Security Agreement dated as of April 29, 1999 between the Company and
Fleet Bank, N.A. (incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-KSB dated April 30, 1999).
10(k) * Amendment to Employment Agreement dated May 1, 2000 between the
Company and Paul Mendez.
10(l) * Extension to Employment Agreement dated April 6, 2000 between the
Company and Howard Kogen.
10(m) * Extension to Employment Agreement dated April 6, 2000 between the
Company and Antoine J. Sayour.
* Filed herewith.
22 SUBSIDIARIES OF THE COMPANY
(b) Reports on Form 8-K- NONE
20
<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.
Date: July 24, 2000 By s/s Paul Mendez
--------------------------------------
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 24, 2000
----------------------------- President and Chief
Paul Mendez Executive Officer
s/s Jeffrey Cohen Vice-President-Finance, July 24, 2000
----------------------------- Chief Financial Officer and
Jeffrey Cohen Principal Accounting Officer
s/s Peter Barotz Director July 24, 2000
-----------------------------
Peter Barotz
s/s Richard G. Scurry, Jr. Director July 24, 2000
-----------------------------
Richard G. Scurry, Jr.
s/s Ronald A. Levin Director July 24, 2000
-----------------------------
Ronald A. Levin
s/s Orhan I. Sadik-Khan Director July 24, 2000
-----------------------------
Orhan I. Sadik-Khan
s/s Harry B. Levine Director July 24, 2000
-----------------------------
Harry B. Levine
21
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONTENTS
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENTS OF INCOME F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 - F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-17
F-1
<PAGE>
ROTHSTEIN, KASS & COMPANY, P.C.
--------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Firecom, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Firecom, Inc. and
Subsidiaries as of April 30, 2000, and the related consolidated statements of
income, stockholders' equity and cash flows for the years ended April 30, 2000
and 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Firecom, Inc. and Subsidiaries as of April 30, 2000, and the consolidated
results of their operations and their cash flows for the years ended April 30,
2000 and 1999, in conformity with generally accepted accounting principles.
/S/ ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
June 19, 2000
F-2
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,378,000
Accounts receivable, less allowance for
doubtful accounts of $400,000 4,025,000
Inventories 2,042,000
Deferred tax asset 681,000
Prepaid expenses and other current assets 207,000
--------------
Total current assets 11,333,000
PROPERTY, PLANT AND EQUIPMENT, net 630,000
DEFERRED TAX ASSET 283,000
INTANGIBLE ASSETS, less accumulated amortization of $130,000 42,000
---------------
$ 12,288,000
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 363,000
Line of credit borrowing 800,000
Accounts payable 859,000
Accrued expenses and other current liabilities 1,735,000
--------------
Total current liabilities 3,757,000
LONG-TERM LIABILITIES:
Notes payable, less current portion 700,000
Accrued compensation 489,000
--------------
Total long-term liabilities 1,189,000
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 7,342,774, outstanding 5,775,285 73,000
Class A Common Stock, par value $.01,
authorized 10,000,000 shares,
issued 5,999,107 outstanding 4,968,113 60,000
Capital in excess of par value 2,896,000
Retained earnings 5,539,000
--------------
8,568,000
Less treasury stock, at cost, 1,567,489 shares
of Common Stock and 1,030,994 shares of Class
A Common Stock 1,226,000
--------------
Total stockholders' equity 7,342,000
---------------
$ 12,288,000
===============
See accompanying notes to consolidated financial statements
F-3
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended April 30, 2000 and 1999
2000 1999
-------------- --------------
NET SALES:
Product $ 11,020,000 $ 10,830,000
Services 8,288,000 6,540,000
-------------- --------------
19,308,000 17,370,000
-------------- --------------
COST OF SALES:
Product 7,219,000 6,899,000
Services 4,011,000 3,924,000
-------------- --------------
11,230,000 10,823,000
-------------- --------------
GROSS PROFIT 8,078,000 6,547,000
-------------- --------------
OPERATING EXPENSES:
Selling, general and administrative 5,217,000 3,801,000
Research and development 945,000 702,000
-------------- --------------
Total operating expenses 6,162,000 4,503,000
-------------- --------------
INCOME FROM OPERATIONS 1,916,000 2,044,000
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income 210,000 189,000
Interest expense (187,000) (228,000)
Other - (2,000)
-------------- --------------
23,000 (41,000)
-------------- --------------
INCOME BEFORE INCOME TAX EXPENSE 1,939,000 2,003,000
INCOME TAX EXPENSE 750,000 899,000
-------------- --------------
NET INCOME $ 1,189,000 $ 1,104,000
============== ==============
NET INCOME PER COMMON SHARE
Basic $ 0.11 $ 0.10
============== ==============
Diluted $ 0.10 $ 0.10
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN
COMPUTING NET INCOME PER COMMON SHARE
Basic 10,743,000 11,111,000
============== ==============
Diluted 11,451,000 11,549,000
============== ==============
See accompanying notes to consolidated financial statements
F-4
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
Common Stock Class A Common Stock Capital in
------------------------- ------------------------- Excess of Retained
Shares Amount Shares Amount Par Value Earnings
------------ ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, April 30, 1998 7,140,113 $ 71,000 6,738,263 $ 67,000 $ 2,764,000 $ 3,267,000
CONVERSION OF CLASS A
COMMON STOCK TO
COMMON STOCK 141,311 2,000 (141,311) (2,000)
PURCHASE OF MAY FAMILY
STOCK PURSUANT TO
OPTION AND ESCROW
AGREEMENT (SEE NOTE 9) (536,495) (5,000) (21,000)
EFFECT OF DISTRIBUTOR
STOCK OPTIONS 17,000
NET INCOME 1,104,000
------------ ------------ ------------ ----------- ----------- ------------
BALANCES, April 30, 1999 7,281,424 73,000 6,060,457 60,000 2,781,000 4,350,000
CONVERSION OF CLASS A
COMMON STOCK TO
COMMON STOCK 61,350 (61,350)
EFFECT OF DISTRIBUTOR
STOCK OPTIONS (8,000)
EFFECT OF EMPLOYEE
STOCK OPTIONS 123,000
NET INCOME 1,189,000
------------ ------------ ------------ ----------- ----------- ------------
BALANCES, April 30, 2000 7,342,774 $ 73,000 5,999,107 $ 60,000 $ 2,896,000 $ 5,539,000
============ ============ ============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
Shares Amount Total
----------- ------------ -----------
<S> <C> <C> <C>
BALANCES, April 30, 1998 2,061,988 $(1,226,000) $4,943,000
CONVERSION OF CLASS A
COMMON STOCK TO
COMMON STOCK
PURCHASE OF MAY FAMILY
STOCK PURSUANT TO
OPTION AND ESCROW
AGREEMENT (SEE NOTE 9) 536,495 (26,000)
EFFECT OF DISTRIBUTOR
STOCK OPTIONS 17,000
NET INCOME 1,104,000
----------- ------------ -----------
BALANCES, April 30, 1999 2,598,483 (1,226,000) 6,038,000
CONVERSION OF CLASS A
COMMON STOCK TO
COMMON STOCK
EFFECT OF DISTRIBUTOR
STOCK OPTIONS (8,000)
EFFECT OF EMPLOYEE
STOCK OPTIONS 123,000
NET INCOME 1,189,000
----------- ------------ -----------
BALANCES, April 30, 2000 2,598,483 $(1,226,000) $7,342,000
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,189,000 $ 1,104,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 224,000 229,000
Provision for doubtful accounts 278,000 (55,000)
Deferred income tax credit (312,000) (46,000)
Other miscellaneous credits (15,000)
Employee stock option expense 123,000
Distributor stock option expense (credit) (8,000) 17,000
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (725,000) (779,000)
Inventories (130,000) (411,000)
Prepaid expenses and other current assets 31,000 (98,000)
Accounts payable (181,000) 284,000
Accrued expenses and other current liabilities 138,000 483,000
Accrued compensation 254,000 (108,000)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 881,000 605,000
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES,
purchases of property, plant and equipment (206,000) (132,000)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (358,000) (608,000)
Payments on line of credit borrowing (500,000)
Proceeds from line of credit borrowing 800,000
Payments on purchase of redeemable stock (308,000)
-------------- --------------
NET CASH USED IN FINANCING ACTIVITIES (358,000) (616,000)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 317,000 (143,000)
CASH AND CASH EQUIVALENTS:
Beginning of year 4,061,000 4,204,000
-------------- --------------
End of year $ 4,378,000 $ 4,061,000
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Years Ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the years $ 196,000 $ 224,000
============== ==============
Cash paid for income taxes during the years $ 1,121,000 $ 964,000
============== ==============
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND
FINANCING ACTIVITIES:
Notes payable issued for the purchase of May Family
stock, pursuant to Option and Escrow Agreement $ - $ 308,000
============== ==============
</TABLE>
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")
are engaged in 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, as well as
other areas of the United States for which subsidiary operations have
been established to sell to and service end users. None of the
Company's customers exceed 10% of consolidated net sales. The majority
of the Company's employees are covered by 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., BRD FRCM
Service, Inc., Firecom West, Inc. and Firecom Minnesota, 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 investment commercial paper.
INVENTORIES - Inventories, which are comprised of raw materials, 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 3 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, 2000
and 1999, were approximately $145,000 and $182,000, 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.
NET INCOME PER COMMON SHARE - Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" 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.
A reconciliation of the income, weighted-average shares and earnings
per share (EPS) shares used in both calculations follows:
YEAR ENDED APRIL 30, 2000
INCOME SHARES EPS
------ ------ ---
Basic EPS
Net income applicable to common
shareholders $ 1,189,000 10,743,000 $ 0.11
Effect of stock options 708,000 (0.01)
-------------- ------------- -------------
Diluted EPS
Net income applicable to common
shareholders $ 1,189,000 11,451,000 $ 0.10
============== ============= =============
F-9
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
YEAR ENDED APRIL 30, 1999
INCOME SHARES EPS
------ ------ ---
Basic EPS
Net income applicable to common
shareholders $ 1,104,000 11,111,000 $ 0.10
Effect of stock options and
warrants 438,000
-------------- ------------- -------------
Diluted EPS
Net income applicable to common
shareholders $ 1,104,000 11,549,000 $ 0.10
============== ============= =============
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at April 30,
2000:
Leasehold improvements $ 348,000
Machinery and equipment 832,000
Furniture and fixtures 580,000
------------
1,760,000
Less accumulated depreciations and amortization 1,130,000
------------
$ 630,000
============
The Company owns its headquarters building located in Woodside, New
York. The building is approximately 15,000 square feet. Because of
purchase accounting, it is carried at no value on the books of the
Company.
F-10
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following at April 30, 2000:
Vacation pay $ 304,000
Incentive compensation 246,000
Payroll 151,000
Fringe benefits 306,000
Deferred revenues 94,000
Other 634,000
------------
$ 1,735,000
============
NOTE 4 - NOTES PAYABLE:
Notes payable consist of the following at April 30, 2000:
Interest
Rate
-----------
Note payable to May Family, pursuant to
Stock Purchase Agreement, in annual
installments of $61,679, plus interest,
through July 2000 12% $ 62,000
Note payable to Norwood Venture Corp.,
pursuant to Stock Purchase Agreement, in
quarterly installments of $71,755,
including interest, through March 2003 10% 736,000
Notes payable to May Family, pursuant to the
Option and Escrow Agreement, in annual
installments of $61,697, plus interest, through
September 2003, collaterialized by shares of the
Company's Common Stock held in escrow 11.55% 247,000
Note payable to BRD Systemes, Inc., pursuant to
acquisition of certain assets, in quarterly
installments of $9,586, including interest,
through August 2000 10% 18,000
------------
1,063,000
363,000
------------
$ 700,000
============
F-11
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NOTES PAYABLE (CONTINUED):
Aggregate future principal payments are as follows:
Year ended April 30:
2001 $ 363,000
2002 306,000
2003 332,000
2004 62,000
------------
$ 1,063,000
============
The Company maintains a line of credit with a bank. Under the line of
credit, the Company may borrow up to $5,000,000, with interest, at the
bank's agreed rate (6.31% at April 30, 2000) plus 1 3/4%. Borrowings
under the line of credit are collateralized by substantially all of
the Company's assets, excluding real estate. Any borrowings under the
line of credit outstanding in April 2001, which have been drawn upon
for acquisition purposes (as defined in the line of credit agreement),
will be converted into a 5-year term note payable in monthly
installments, plus interest. In April 2002, any borrowings outstanding
that are not repaid in full, will be converted into a 4-year term
note, payable in monthly installments, plus interest. Borrowings under
the line of credit at April 30, 2000 were $800,000.
The line of credit contains certain financial covenants.
NOTE 5 - STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS:
STOCK OPTIONS - The Company maintains a stock option plan (the "Plan")
which expires April 30, 2008. The Common Stock reserved for issuance
under the Plan is 1,700,000 shares. Information relating to the stock
options under the Plan during the years ended April 30, 2000 and 1999
is as follows:
Number Per Share
of Shares Option Price
------------ -------------
Outstanding at April 30, 1998 1,114,000 $ .15-.625
Granted 40,000 0.50
------------ -------------
Outstanding at April 30, 1999 1,154,000 .15-.625
Granted 20,000 0.56
Cancelled (28,000) .375-.625
------------ -------------
Outstanding at April 30, 2000 1,146,000 .15-.625
============ =============
Exercisable at April 30, 2000 996,000 $ .15-.625
============ =============
The weighted average exercise price of outstanding options, as of
April 30, 2000 was $.31 an option.
F-12
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS (CONTINUED):
At May 1, 1999, 442,000 stock options issued to certain officers of
the Company were due to expire. In connection with a one-year
extension of these officers' employment contracts, they were granted a
one-year extension to exercise their stock options. Under the
provisions of Accounting Principles Board Opinion No. 25 (APB No. 25)
"Accounting for Stock Issued to Employees" compensation expense of
approximately $123,000 was recorded for the year ended April 30, 2000
to recognize the difference between the fair market value of the
underlying stock at the date of the extension and the stock options'
exercise prices.
Effective May 1, 2000 the employment agreements of two officers of the
Company were extended for a term of five years. Under the terms of the
extended employment agreements, the stock options held by the officers
under the Plan were extended for a period of seven years. Accordingly
under the provisions of APB No. 25, compensation expense will be
recorded for the year ended April 30, 2001 for the difference between
the fair market value of the underlying stock and the stock options'
exercise prices.
The Company has adopted the disclosure-only requirements of Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting
for Stock-Based Compensation" when accounting for equity transactions
with employees. The Company applies APB No. 25 and related
interpretations in accounting for its plans. Had compensation cost for
the plan been determined based on the fair value of the options 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,
-----------------------------
2000 1999
-------------- --------------
Net income applicable to common shareholders:
As reported $ 1,189,000 $ 1,104,000
Pro forma 1,176,000 1,092,000
Net income per share applicable to common shareholders:
Basic, as reported 0.11 0.10
Diluted, as reported 0.10 0.10
Basic, pro forma 0.11 0.10
Diluted, pro forma 0.10 0.09
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 2000 and 1999
respectively: risk-free interest rate of 5%; no dividend yield;
expected lives of 10 years; and expected volatility of 36% and 29%,
respectively.
F-13
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5- STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS (CONTINUED):
STOCK APPRECIATION RIGHTS - The Company has stock appreciation rights
agreements (SARs) with certain officers and directors, which grants
them the right to receive in cash the excess of the fair market value
(FMV) of a common share over the base price (as defined in the
agreements). The following summarizes the SARs at April 30, 2000:
Rights Rights Base
Granted Excersable Price FMV
----------- -------------- ------------- ------------
(A) 400,000 400,000 $ 0.125 $ 0.75
(A) 200,000 200,000 0.25 0.75
(A) 200,000 200,000 0.50 0.75
(A) 200,000 200,000 0.75 0.75
(B) 40,000 40,000 0.56 0.75
(B) 40,000 40,000 0.60 0.75
(B) 120,000 120,000 0.14 0.75
(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.
(B) These rights have been granted to directors upon their being
elected to the Board of Directors.
Selling, general and administrative expenses include a charge
(credit) of approximately $254,000 and ($108,000) for the years
ended April 30, 2000 and 1999, respectively, for compensation as
a result of the SARs. At April 30, 2000, the Company has accrued
compensation of $489,000 as a result of the SARs.
NOTE 6- 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 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 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 held in its
treasury.
On March 27, 1997, the Company purchased 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. The terms
of the agreement provide for a cash payment in the amount of $320,833
and a six-year subordinated promissory note for $1,283,332, bearing
interest at 10% per annum. Principal and interest totaling $71,755 is
paid quarterly through March 2003. The note also contains certain
financial covenants.
F-14
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK (CONTINUED):
In September 1998, pursuant to a related agreement with the May
Family, the Company repurchased 536,495 shares of its Common Stock and
536,495 shares of its Class A Common Stock (which were retired) at an
agreed upon price of $.575 per share. Pursuant to the agreement a cash
payment of $308,485 was paid and the Company issued five, five-year
notes, aggregating $308,485, bearing interest at 11.5% per annum were
issued. Principal payments on the notes will be made in five
installments aggregating $61,697. Interest on the notes is to be paid
monthly. The notes are collateralized by the repurchased shares of the
Company's Common Stock, which are held in escrow.
NOTE 7 - PENSION PLAN AND PROFIT SHARING 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 $137,000 and $129,000 in
2000 and 1999, 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.
In fiscal 2000, the Company established a defined contribution profit
sharing plan, which covers all non-union employees who meet certain
eligibility requirements. Contributions to the plan are made at the
discretion of the Board of Directors. For the year ended April 30,
2000, the Company accrued contributions to the plan of approximately
$77,000.
NOTE 8 - INCOME TAXES:
The provision for income taxes consists of the following:
Year Ended April 30,
---------------------------------
2000 1999
-------------- ------------
Current:
Federal $ 690,000 $ 562,000
State and City 372,000 383,000
-------------- ------------
1,062,000 945,000
-------------- ------------
Deferred:
Federal (212,000) (27,000)
State and City (100,000) (19,000)
-------------- ------------
(312,000) (46,000)
-------------- ------------
Total $ 750,000 $ 899,000
============== ============
F-15
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (CONTINUED):
The following reconciles the Federal statutory rate to the effective
income tax rate:
2000 1999
------------ ------------
Computed tax expense at Federal statutory rate 34 % 34 %
State and City provision, net of Federal tax 12 12
Increasing research activities tax credit (5) (3)
Other (2) 2
------------ ------------
39 % 45 %
============ ============
The components of the Company's deferred tax asset and liability at
April 30, 2000 are as follows:
Deferred tax assets:
Allowance for doubtful accounts $ 185,000
Stock appreciation rights 226,000
Accrued incentive compensation 60,000
Inventories 155,000
Vacation and other fringe benefits 218,000
Research and development credit 63,000
Other 107,000
--------------
Deferred tax asset 1,014,000
Deferred tax liability, tax depreciation
in excess of book depreciation 50,000
--------------
Net deferred tax asset $ 964,000
==============
No valuation allowance was deemed necessary at April 30, 2000 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 9 - COMMITMENTS AND CONTINGENCIES:
The Company rents various warehouse facilities under noncancellable
operating leases expiring through December 2003. The following are the
aggregate future minimum rental payments, as of April 30, 2000:
YEAR ENDING APRIL 30,
2001 $ 93,000
2002 63,000
2003 27,000
2004 18,000
--------------
$ 201,000
F-16
<PAGE>
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
Rent expense for the years ended April 30, 2000 and 1999 amounted to
$152,000 and $94,000, respectively.
The Company has certain employment agreements with key executives
expiring through April 2005. Aggregate annual compensation under these
agreements approximates $655,000.
An employment agreement with an executive of the Company, which goes
into effect May 1, 2000, provides for the executive, upon the
expiration of his employment agreement, with the option to sell his
stock and stock options back to the Company. The purchase price of the
stock and stock options will be at a price equal to the difference
between the exercise price of the stock options and the fair market
value of the underlying stock. The agreement provides for a fair
market value floor of $.75 and a fair market value ceiling of $1.25.
The purchase price is to be paid on a deferred basis over 3 years.
In connection with the acquisition of certain assets, the Company
entered into a Consulting and Non-competition Agreement with the
President of the company from whom the assets were acquired, and has
continuing payment requirements of $25,000 per quarter through
September 2000.
In order to increase the distribution of its products and services on
a national level, the Company has established a stock option plan for
distributors of its products. The plan provides for the issuance of
stock options to purchase the Company's common stock, at a
pre-determined price ($.55, which approximated the fair market value
of the common stock at the inception of the plan), provided that the
distributor purchases a specified dollar amount of the Company's
product over a three-year period.
Various lawsuits and claims arising in the ordinary course of business
have been instituted against the Company. While the ultimate effects
of such litigation cannot be determined at the present time, it is
management's opinion, based on the advice of legal counsel, that any
liabilities resulting from the actions would not have a material
effect on the Company's financial position, results of operations or
cash flows.
NOTE 10 - PURCHASE CONCENTRATIONS:
For the year ended April 30, 2000 the Company had net purchases of
13%, 13%, and 11% from three vendors, respectively. For the year ended
April 30, 1999 the Company had net purchases of 14% and 11% from two
vendors, respectively. In Management's opinion, the loss of any of
these vendors should not materially affect the operations of the
Company, as other sources of supplies are available.
NOTE 11 - CONCENTRATION OF CREDIT RISK:
The Company's cash and cash equivalents, including commercial
investment paper, of $4,061,000, 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 of loss to a minimum.
F-17
