<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995
-------------------------
COMMISSION FILE NUMBER O-17580
-------------------------
FIRETECTOR INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2941299
(State or jurisdiction of (IRS Employer identification
incorporation or organization) Number)
262 Duffy Avenue, Hicksville, New York 11801
(Address of principal executive offices Zip Code)
(516) 433-4700
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that Registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: As of August 11, 1995, 3,183,400 shares of Registrant's
Common Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
<PAGE> 2
Part I - FINANCIAL INFORMATION
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet
Unaudited
<TABLE>
<CAPTION>
June 30,
1995
----------------
<S> <C>
ASSETS
Current assets:
Cash $ 4,981
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $131,608 3,445,040
Accounts receivable from affiliated
companies 256,398
Inventories 2,076,104
Prepaid expenses and other current assets 203,211
-------------
Total current assets 5,995,734
Property and equipment at cost, less
accumulated depreciation and
amortization of $503,456 464,705
Software development costs, net 96,543
Other assets 509,190
-------------
Total assets $7,066,172
=============
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE> 3
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
<TABLE>
<CAPTION>
June 30,
1995
------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable bank $1,901,009
Other notes payable 380,275
Accounts payable and accrued expenses 1,802,763
Unearned service revenue 301,671
Current portion of capital lease obligations 2,000
------------
Total current liabilities 4,387,718
Note payable bank 369,049
Other notes payable, less current portion 143,051
Capital lease obligations, less current portion 5,317
Due to affiliated companies 60,663
-----------
Total liabilities 4,965,798
Stockholders' equity:
Convertible preferred stock, 2,000,000
shares authorized - 675,000 shares issued
and outstanding 675,000
Common stock, 25,000,000 shares authorized,
$.001 par value; issued and outstanding
3,183,400 shares 3,183
Capital in excess of par 5,292,611
Deficit (3,870,420)
-----------
Total stockholders' equity 2,100,374
-----------
Total liabilities and stockholders' equity $7,066,172
===========
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE> 4
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
June 30,
1995 1994
---------------------
<S> <C> <C>
Net sales $2,477,482 $2,270,055
Service revenues 976,337 902,570
-----------------------
Total revenues 3,453,819 3,172,625
-----------------------
Cost of sales 1,512,968 1,254,803
Cost of service 560,843 680,089
Selling, general and administrative 1,157,209 1,127,139
Interest expense 78,861 55,032
Depreciation and amortization expense 53,000 38,501
Other (income) net (5) (1,170)
----------------------
3,362,876 3,154,394
----------------------
Net income $ 90,943 $ 18,231
======================
Per share data: ----------------------
Net income $ 0.02 $ 0.01
======================
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE> 5
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended
June 30,
1995 1994
------------------------
<S> <C> <C>
Net sales $6,984,079 $5,931,699
Service revenues 3,071,156 2,547,747
------------------------
Total revenues 10,055,235 8,479,446
------------------------
Cost of sales 4,449,641 3,388,059
Cost of service 1,759,402 1,692,339
Selling, general and administrative 3,270,632 3,116,479
Interest expense 242,671 107,836
Depreciation and amortization expense 168,287 102,482
Other (income) net (867)
------------------------
9,890,633 8,406,238
------------------------
Net income $ 164,602 $ 73,118
========================
Per share data: -------------------------
Net income $ 0.05 $ 0.02
=========================
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE> 6
Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION> For The Nine Months
Ended
June 30,
1995 1994
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $164,602 $73,118
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 168,287 128,875
Provision for doubtful accounts 45,000 30,000
Changes in operating assets and liabilities:
Accounts receivable 353,294 (775,880)
Inventories, prepaid expenses and other
current assets (541,403) (782,127)
Accounts receivable from affiliated
company (59,631) 39,187
Other assets (110,559) 134,426
Accounts payable and accrued expenses 39,053 336,958
Unearned service revenue (72,597) 25,289
Due to affiliated companies 249,450 202,541
---------------------
Net cash provided by (used in)
operating activities 190,496 (587,613)
INVESTING ACTIVITIES
Purchases of property and equipment (95,342) (104,059)
Software development costs (57,893)
---------------------
Net cash used in investing activities (95,342) (161,952)
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long term debt, and capital
lease obligations (411,706) (107,953)
Proceeds from notes payable 227,275 620,186
Proceeds from sale of Common Stock 105,000
Expenses associated with outstanding Warrants (14,978)
---------------------
Net cash (used in) provided by
financing activities (184,431) 602,255
Net decrease in cash and cash equivalents (89,277) (147,310)
Cash and cash equivalents at beginning
of year 94,258 80,850
---------------------
Cash and cash equivalents at end of period $ 4,981 $(66,460)
<FN> =====================
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE> 7
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required
by generally accepted accounting principles for complete
financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Results for the three and nine months ended June 30,
1995 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1995. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and
Subsidiary's annual report on Form 10KSB for the year ended
September 30, 1994.
2. INVENTORY
Inventories are priced at the lower of cost (first-in, first-out)
or market and consist primarily of raw materials.
3. LONG TERM DEBT
The Registrant has a credit facility with a New York City bank
for $2,750,000. The credit facility provides for a $500,000 three
year term loan (with a seven year amortization) and
a $2,250,000 revolving line of credit through June 30, 1995. The
credit facility provides for interest at prime plus 2% on
outstanding balances. Advances under the credit facility
are measured against a borrowing base calculated on eligible
receivables and inventory. The credit facility is secured by all
of the assets of the Registrant and all of its operating
subsidiaries, as well as a $500,000 letter of credit provided by
the Registrant's majority shareholder. Further, in exchange for
options to acquire 500,000 shares of the Registrant's common
stock at an exercise price of $.30 per share, an affiliate of
Mirtronics has guaranteed minimum increases in retained earnings
of $100,000 for fiscal 1994 (with a maximum guarantee of
$100,000) and, if the credit facility is renewed, $250,000 for
fiscal 1995 (with a maximum guarantee of $250,000). Due to the
loss in fiscal 1994, the guarantor loaned the Registrant the
required $100,000 which is subordinated to the bank. This loan
bears interest at a rate of 5% above the prime rate of The
<PAGE> 8
Royal Bank of Canada and is payable upon demand subject to its
subordination.
The Registrant and its bank have agreed upon extending the
expiration date of the revolving line of credit to
March 31, 1996, and a reduction of the maximum amount available
to borrow to $2,000,000. All other aspects of the credit facility
remain unchanged.
The credit facility includes certain restrictive covenants,
which among other things, impose limitations on declaring or
paying dividends, acquisitions and capital expenditures. The
Registrant is also required to maintain various financial ratios.
At September 30, 1994, and continuing through March 31, 1995, the
Registrant was in default of several of its financial covenants.
At June 30, 1995 the Registrant had cured all defaults.
4. TRANSACTIONS WITH RELATED PARTIES
At June 30, 1995, the Registrant was indebted to Mirtronics
and its subsidiaries for materials, loans, and miscellaneous
advances in the aggregate amount of $60,664. This indebtedness is
secured by a pledge of all of the Registrant's assets and is
subordinate to debt payable to the Registrant's bank. The
Registrant is also indebted, on a demand basis to First Corporate
Equity Ltd., an affiliate of a director of Mirtronics, for notes
payable in the aggregate amount of $185,957 at June 30, 1995. The
Registrant has a receivable from Mirtronics in the amount of
$256,398 at June 30, 1995.
On March 3, 1995 the Registrant entered into a Debt/Equity
Agreement with Mirtronics, whereby Mirtronics will have the
right, exercisable from time to time until September 30, 1996, to
convert all or part of the Registrant s debt to Mirtronics into
shares of Class A, Series 1 Preferred Stock, at the conversion
price of $1.00 per share, or one share of Preferred Stock for
each dollar of debt converted. The Preferred Stock may be
converted into Common Stock at the rate of two Common shares for
one share of Preferred.
On March 16, 1995, Mirtronics converted $425,000 of debt into
425,000 shares of Class A, Series 1 Preferred Stock and on May
17, 1995, Mirtronics converted an additional $250,000 of debt
into 250,000 shares of Class A, Series 1 Preferred Stock.
5. STOCKHOLDERS' EQUITY
In June 1993, the Registrant sold 375,000 units at a price of
$3.50 per unit. The net proceeds, after accounting for direct
expenses of the offering, were $908,000. Each unit sold consisted
of three shares of Common Stock, $.001 par value, and three
common stock purchase warrants ("Warrants"). Each Warrant
<PAGE> 9
entitles the registered holder to purchase one share of common
stock at a price of $1.63, exercisable at any time through
June 9, 1995. The exercise term is extendible by the Registrant
at its sole discretion. The Warrants became separately
transferable and detachable 180 days after the close of the
offering.
On May 31, 1995 the Registrant reduced the unit price of the
Warrants to $1.50 per unit. Management did not extend the
expiration date of the Warrants, and therefore on June 9, 1995,
the Warrants expired.
In May 1995, the Registrant granted Judson Enterprises, Ltd.
100,000 options to purchase common stock at a price of $1.00 per
share in exchange for investment banking services.
The Preferred shares provide for cash dividends, when and if
declared, at a rate per share equal to the interest rate charged
by the Registrant's bank to its preferred customers (9% at
June 30, 1995). Redemption is restricted by the Registrant's bank
credit facility. The Preferred stock has the benefit of veto and
super-majority protections against fundamental acts.
6. ACQUISITIONS
On October 1, 1994 the Registrant formed a new subsidiary,
Amco Maintenance Corp. to perform the cleaning requirements of
its service contracts.
On April 1, 1994 the Registrant formed a new subsidiary,
Systems Service Technology Corp. which acquired selected assets
of a New York City service organization. The purchase price is
payable over three years based on a formula of selected revenues.
7. LEGAL PROCEEDINGS
On December 29, 1994 Casey Systems Inc. ("Casey") filed suit
in the United States District Court for the Southern District of
New York against its largest competitor in the New York City life
safety market, Firecom, Inc. and a number of its affiliates. The
suit, which seeks legal damages in excess of $10,000,000 and
certain equitable remedies, is based on numerous Federal and
State claims including, without limitations, violation of Federal
and New York State anti-trust statutes, unfair competition,
unlawful theft of proprietary information, deceptive trade
practices, tortious interference with contract and other claims.
The suit also sets forth a breach of contract claim against a
customer of Casey who improperly breached a binding contract with
Casey. Casey has filed a motion to disqualify counsel for several
of the defendants, which is pending.
<PAGE>
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)
Liquidity and Capital Resources
The Registrant has a credit facility with a New York City bank
for $2,750,000. At June 30, 1995 the Registrant owed $2,270,058
under the terms of the credit facility. The credit facility
provides for a $500,000 three year term loan (with a seven year
amortization) and a $2,250,000 revolving line of credit through
June 30, 1995. The credit facility provides for interest at prime
plus 2% on outstanding balances. Advances under the credit
facility are measured against a borrowing base calculated on
eligible receivables and inventory. The credit facility is
secured by all of the assets of the Registrant and all of its
operating subsidiaries, as well as a $500,000 letter of credit
provided by the Registrant's majority shareholder. Further, in
exchange for options to acquire 500,000 shares of the
Registrant's common stock at an exercise price of $.30 per share,
an affiliate of Mirtronics has guaranteed minimum increases in
retained earnings of $100,000 for fiscal 1994 (with a maximum
guarantee of $100,000) and, if the credit facility is renewed,
$250,000 for fiscal 1995 (with a maximum guarantee of $250,000).
Due to the loss in fiscal 1994, the guarantor loaned the
Registrant the required $100,000 which is subordinated to the
bank. This loan bears an interest rate of 5% above the prime
rate of The Royal Bank of Canada and is payable upon demand
subject to its subordination.
The Registrant and its bank have agreed upon extending the
expiration date of the revolving line of credit to March 31,
1996, and a reduction of the maximum amount available to borrow
to $2,000,000. All other aspects of the credit facility remain
unchanged.
The credit facility includes certain restrictive covenants,
which among other things, impose limitations on declaring or
paying dividends, acquisitions and capital expenditures. The
Registrant is also required to maintain various financial ratios.
At September 30, 1994, and continuing through March 31, 1995,
the Registrant was in default of several of its financial
covenants. At June 30, 1995 the Registrant had cured all
defaults.
Management believes that anticipated positive cash flow from
operations, primarily due to profits and the reduction in
inventory levels, will enable the Registrant to satisfy these
obligations as and when due.
Net cash provided by operations for the nine months ended
<PAGE> 11
June 30, 1995 amounted to $190,496 as compared to net cash used
by operations of $587,613 for the comparable prior year period.
The primary reason for the provision of cash was net income of
$164,602 as compared to $73,118 for the comparable prior year
period.
At June 30, 1995 the Registrant and its affiliates were
indebted (on a demand basis) to Mirtronics and its subsidiaries
for materials, loans and miscellaneous advances in the aggregate
amount of $60,664. This indebtedness is subordinated to the
Credit Facility. The Registrant and its affiliates are also
indebted to First Corporate Equity Ltd., an affiliate of a
director of Mirtronics, in the aggregate amount of $185,957 at
June 30, 1995. The Registrant has a receivable from Mirtronics in
the amount of $256,398 at June 30, 1995.
Results of Operations
The Registrant's total revenues during the three and nine
month periods ended June 30, 1995 increased to $3,453,819 and
$10,055,235, respectively, as compared to $3,172,625 and
$8,479,446 for the comparable periods of the prior year. Net
income prior to the impact of interest and depreciation and
amortization increased to $222,804 and $575,560 for the three and
nine month periods of the current year, respectively, as compared
to $111,764 and $283,436 for the comparable period of the prior
year. Results during the nine month period is impacted by
approximately $150,000 of non-operating and/or non-recurring
expenses related to relocation expenses (net of rent abatements),
personnel reductions, amortization of acquisition costs, bank
origination fees and legal expenses. In addition, depreciation
increased significantly due to computer upgrades and capital
investments in the Long Island and New York City facilities. The
increase in revenues is consistent with forecasts, and relates
primarily to the Registrants' product and market diversification
as well as increased fire control life safety service and sound
product revenues and the acquisition of Systems Service
Technology Corp. ( SST ). As a result of management's intensified
focus on the service segment, service revenues increased 8% and
21% for the three and nine month periods ended June 30, 1995,
over the comparable 1994 periods due to an aggressive marketing
approach and systems coming out of warranty.
Gross profit on product sales for the three and nine month
periods ended June 30, 1995 was 39% and 36%, respectively, as
compared with 45% and 43%, respectively, for the comparable 1994
periods. Gross profit as a percentage of sales for the nine
months ended June 30, 1995 is comparable to the percentage
recorded for the year ended September 30, 1994 after reflecting
the impact of the fourth quarter adjustments. Gross profit was
also impacted during the fiscal year by having a greater
percentage of lower margin distributed product (as opposed to
<PAGE> 12
manufactured product) and activities of a competitor (see Note
7). Gross profit on service sales increased to 43% for the three
and nine month periods ended June 30, 1995 as compared to 25%
and 34% for the comparable 1994 period. This increase is due to
over-absorption of fixed costs through higher volumes, more
efficient use of labor and the elimination of outside
subcontracted labor.
Net income for the three and nine month periods ended
June 30, 1995 increased to $90,943 and $164,602, respectively, as
compared to net income of $18,231 and $73,118 for the comparable
periods of the prior year. This increase is due to higher
revenues and strict adherence to budgets. Interest costs
increased $23,829 and $134,835 for the three and nine months of
the current period, respectively, as compared to the same periods
of the prior year. This is attributable to increases in the prime
rate and credits received during the 1994 period. Due to computer
upgrades and capital investments in the Long Island and New York
City facilities, depreciation increased $14,499 and $65,805 for
the three and nine months of the current period, respectively, as
compared to the same periods of the prior year. Results during
the three month period were also impacted by approximately
$50,000 relating to accounting charges related to the Credit
Facility renewal, and legal fees relating to the litigation. (See
note 7).
Selling, general and administrative expenses, as a percentage
of sales, decreased to 34% and 33%, respectively, for the three
and nine month periods ended June 30, 1995 from 36% and 37% for
the comparable periods of the prior year. This decrease is a
result of increased revenues, tighter controls being placed on
all expenditures, strict adherence to budgets, realization of
the benefits of personnel reductions, and is offset by the
acquisition of the Registrant s newest subsidiary SST, and the
opening of a service facility in New York City.
The backlog of orders at June 30, 1995 amounted to $6,400,000
as compared to $4,800,000 at March 31, 1995 and $4,500,000 at
December 31, 1994. Management expects to improve profitability as
the increased backlog is shipped or performed. It is anticipated
that the majority of the current backlog will be completed by the
end of fiscal 1996.
<PAGE>
<PAGE> 13
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Item 6. a. Exhibits and Reports on Form 8-K.
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K.
On May 17, 1995, the Registrant filed a Report on Form 8-K
reporting on Item 5. Not required, but filed with said Report on
Form 8-K were pro-forma financial statements as at may 17, 1995.
These financial statements gave effect to a conversion of debt to
equity reported pursuant to Item 5.<PAGE>
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRETECTOR, INC.
(Registrant)
Date: August 11, 1995 DENNIS P. McCONNELL
------------------------------------
DENNIS P. McCONNELL,
(ASSISTANT SECRETARY)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Consolidated Statement of Financial Condition at June
30, 1995 (Unaudited) and the Consolidated Statement of Income for
the Nine Months Ended June 30, 1995 (Unaudited) and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 4,981
<SECURITIES> 0
<RECEIVABLES> 3,843,046
<ALLOWANCES> 131,608
<INVENTORY> 2,076,104
<CURRENT-ASSETS> 5,995,734
<PP&E> 968,161
<DEPRECIATION> 503,456
<TOTAL-ASSETS> 7,066,172
<CURRENT-LIABILITIES> 4,387,718
<BONDS> 0
<COMMON> 3,183
0
675,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,066,172
<SALES> 10,055,235
<TOTAL-REVENUES> 10,055,235
<CGS> 6,209,043
<TOTAL-COSTS> 9,890,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242,671
<INCOME-PRETAX> 164,602
<INCOME-TAX> 0
<INCOME-CONTINUING> 164,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,602
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
