<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 March 31, 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 May 22, 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>
March 31,
1995
----------------
<S> <C>
ASSETS
Current assets:
Cash $ 60,566
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $128,101 3,699,024
Inventories 1,808,940
Prepaid expenses and other current assets 170,269
-------------
Total current assets 5,738,799
Property and equipment at cost, less
accumulated depreciation and
amortization of $470,772 485,033
Software development costs, net 105,319
Other assets 515,853
-------------
Total assets $6,845,004
=============
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE> 3
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
<TABLE>
<CAPTION>
March 31,
1995
------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable bank - in default $2,336,915
Other notes payable 375,839
Accounts payable and accrued expenses 1,824,730
Unearned service revenue 307,472
Current portion of capital lease obligations 5,177
------------
Total current liabilities 4,850,133
Other notes payable, less current portion 164,980
Capital lease obligations, less current portion 3,582
Due to affiliated companies 66,878
-----------
Total liabilities 5,085,573
Stockholders' equity:
Convertible preferred stock, 2,000,000
shares authorized - 425,000 shares issued
and outstanding 425,000
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 (3,961,363)
-----------
Total stockholders' equity 1,759,431
-----------
Total liabilities and stockholders' equity $6,845,004
===========
<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
March 31,
1995 1994
---------------------
<S> <C> <C>
Net sales $2,461,929 $2,038,922
Service revenues 1,065,587 879,417
-----------------------
Total revenues 3,527,516 2,918,339
-----------------------
Cost of sales 1,731,889 1,193,318
Cost of service 533,268 558,287
Selling, general and administrative 1,058,512 1,054,681
Interest expense 86,763 28,750
Depreciation and amortization expense 63,303 30,543
Other (income) net 324
----------------------
3,473,735 2,865,903
----------------------
Net income $ 53,781 $ 52,436
======================
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 Six Months Ended
March 31,
1995 1994
------------------------
<S> <C> <C>
Net sales $4,506,597 $3,661,644
Service revenues 2,094,819 1,645,177
------------------------
Total revenues 6,601,416 5,306,821
------------------------
Cost of sales 2,936,673 2,133,256
Cost of service 1,198,559 1,012,250
Selling, general and administrative 2,113,423 1,989,340
Interest expense 163,810 52,804
Depreciation and amortization expense 115,287 63,981
Other (income) net 303
------------------------
6,527,752 5,251,934
------------------------
Net income $ 73,664 $ 54,887
========================
Per share data: -------------------------
Net income $ 0.02 $ 0.01
=========================
<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 Six Months Ended
March 31,
1995 1994
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 73,664 $54,887
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation and amortization 115,287 81,534
Provision for doubtful accounts 30,000 15,000
Changes in operating assets and liabilities:
Accounts receivable 79,310 (484,387)
Inventories, prepaid expenses and other
current assets (241,297) (604,209)
Accounts receivable from affiliated
company 58,648
Other assets (105,684) 304,393
Accounts payable and accrued expenses 61,020 157,776
Unearned service revenue (66,796) 23,930
Due to affiliated companies 5,665 61,993
---------------------
Net cash used in operating activities (48,831) (330,435)
INVESTING ACTIVITIES
Purchases of property and equipment (82,987) (25,747)
Software development costs (165,372)
---------------------
Net cash used in investing activities (82,987) (191,119)
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long term debt, and capital
lease obligations (271,170) (106,930)
Proceeds from notes payable 369,296 465,186
Proceeds from sale of Common Stock 105,000
Expenses associated with outstanding Warrants (14,978)
---------------------
Net cash provided by financing activities 98,126 448,278
Net decrease in cash and cash equivalents (33,692) (73,276)
Cash and cash equivalents at beginning
of year 94,258 80,850
---------------------
Cash and cash equivalents at end of period $60,566 $7,574
=====================
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
<PAGE> 7
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 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 six months ended March 31, 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 Subsidiaries' annual report on Form
10-KSB 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 March 31, 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.
<PAGE> 8
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.
The Registrant is in continuous discussions with its bank in
regard to these defaults and since no waivers have been obtained
as of yet, all amounts due have been classified as current and in
default.
4. TRANSACTIONS WITH RELATED PARTIES
At March 31, 1995, the Registrant was indebted to Mirtronics and
its subsidiaries for materials, loans, and miscellaneous advances
in the aggregate amount of $66,878, which is net of $236,533 due
from Mirtronics. 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 $182,037 at March 31, 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.
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
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.
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 March
<PAGE> 9
31, 1995). Redemption is restricted by the Registrant's bank
credit facility.
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.
8. SUBSEQUENT EVENTS
On May 17, 1995 Mirtronics converted an additional $250,000 of
debt into 250,000 shares of Class A, Series 1 Preferred Stock.
<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 March 31, 1995 the Registrant owed $2,336,915
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
March 31, 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 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.
The Registrant is in continuous discussions with its bank in
regard to these defaults and since no waivers have been obtained
as of yet, all amounts due have been classified as current and in
default.
Management believes that an extension of the existing financing
facility and 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 used by operations for the six months ended March 31,
1995 amounted to $48,831 as compared to $330,435 for the
comparable prior year period. The primary reason for the
reduction in the use of cash was the increase in the volume of
<PAGE> 11
sales of over 20% for the six months ended March 31, 1995, in
conjunction with the acceleration of the collection of
outstanding receivables as well as current receivables,
utilization of existing inventory and large purchases on
favorable terms from suppliers.
At March 31, 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 $66,878, which is net of $236,533 due from Mirtronics.
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 $182,037 at March 31, 1995.
Results of Operations
The Registrant's total revenues during the three and six month
periods ended March 31, 1995 increased to $3,527,516 and
$6,601,416, respectively, as compared to $2,918,339 and
$5,306,821 for the comparable periods of the prior year. Net
income prior to the impact of interest and depreciation and
amortization increased to $203,847 and $352,761 for the three and
six month periods of the current year, respectively, as compared
to $111,729 and $171,672 for the comparable period of the prior
year. Results during the three and six month periods are impacted
by approximately $100,000 and $150,000, respectively, 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. During the current period,
the impact of most of the Registrant's cost reductions were
either not felt (since in place for only a part of the period) or
offset by one time costs such as relocation. 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 21% and 27% for the
three and six month periods ended March 31, 1995, respectively,
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 six month periods
ended March 31, 1995 was 30% and 35%, respectively, as compared
with 42% for the comparable 1994 periods. The difference
in gross profit is primarily attributable to the fact that a
fourth quarter adjustment was required at September 30, 1994 to
<PAGE> 12
adjust for utilizing an estimated gross profit margin for the
first two quarters ended March 31, 1994 that was too high. Gross
profit percentage for the six months ended March 31, 1995 is
comparable to the percentage recorded for the year ended
September 30, 1994 after reflecting the impact of the fourth
quarter adjustment. At March 31, 1995, the Registrant performed
a physical inventory of substantially all of its product, and
this, together with the implementation of improved costing and a
perpetual inventory system at the end of fiscal 1994, further
supported the gross profit percentage reflected in the
Registrant's financial statements at March 31, 1995. Gross profit
was also impacted by a greater percentage of lower margin
distributed product (as opposed to manufactured product) and
activities of a competitor (see Note 7). Gross profit on service
sales increased to 50% and 43% for the three and six month
periods ended March 31, 1995 as compared to 37% and 39% for the
comparable 1994 periods. 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 six month periods ended March 31,
1995 increased to $53,781 and $73,664, respectively, as compared
to net income of $52,436 and $54,887 for the comparable periods
of the prior year. This increase is due to higher revenues,
consistent gross margins on product revenue, and strict adherence
to budget forecasts. Interest costs increased $58,013 and
$111,006 for the three and six 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 $32,760 and $51,306 for the
three and six months of the current period, respectively, as
compared to the same periods of the prior year. Comparison to
the prior period should also consider the aforementioned
fourth quarter adjustment.
Selling, general and administrative expenses, as a percentage of
sales, decreased to 30% and 32%, respectively, for the three and
six month periods ended March 31, 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 March 31, 1995 amounted to $4,800,000 as
compared to $4,500,000 at December 31, 1994. Management expects
<PAGE> 13
to improve profitability as the Registrant realizes contributions
from Pyrotech and SST and increased shipments from Casey Systems,
Inc. made under tighter controls.
<PAGE>
<PAGE> 14
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.
On March 15, 1995, Mirtronics Inc., the Registrant's largest
stockholder converted $425,000 of debt owed to it by the
Registrant into 425,000 shares of Class A, Series 1 Preference
Shares (the "Preference Shares"), pursuant to the terms and
conditions of a Debt/Equity Coversion Agreement (the
"Agreement"), dated as of March 15, 1995. The Agreement provides
Mirtronics with the right to convert outstanding debt owed to it
by the Registrant into Preference Shares. The Preference Shares
(i) are entitled to two(2) votes per share; (ii) convert to two
(2) shares of Common Stock for each share of Preference Stock;
(iii) provide the holders thereof the right, at any time and from
time to time, to require the the Registrant to redeem the
Preference Stock together with all accrued and unpaid dividends
thereon; and (iv) provide the holders thereof with certain
protections against diminution of the the Registrant's assets and
certain organic changes in the existence of the the Registrant.
While the Preference Shares may be redeemed at the option of the
holder or the Registrant it is quite unlikely to occur due to
strict covenants in the Registrant's credit facility. It is not
anticipated that the lender will allow dividends, redemptions, or
debt payments to related parties until the Registrant shows a
continued record of acceptable profits.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit 4.1 Certificate of Amendment of
Certificate of Designation, Preferences and Rights of Class A,
Series 1 Preference Shares of Firetector Inc.
<PAGE> 15
Exhibit 10.1 Debt/Equity Conversion Agreement,
dated as of March 15, 1995, bewteen Mirtronics Inc. and
Firetector Inc.
b. Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter
ended March 31, 1995.
<PAGE>
<PAGE> 16
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: May 22, 1995 DENNIS P. McCONNELL
------------------------------------
DENNIS P. McCONNELL,
(ASSISTANT SECRETARY)
<PAGE>
<PAGE> 1
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF CLASS A, SERIES 1
PREFERENCE SHARES OF FIRETECTOR INC.
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
FIRETECTOR INC., a Delaware corporation (the
"Corporation"), hereby certifies:
First: That pursuant to a written consent of the Board
of Directors of the Corporation, resolutions were duly adopted
setting forth a proposed amendment of the Amended Certificate of
Designation, Preferences and Rights of Class A, Series 1
Preference Shares filed with the State of Delaware Office of
Secretary of State on June 4, 1992, declaring said amendment to
be advisable and calling a meeting of the stockholders entitled
to vote thereon. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Board of Directors, finding it
necessary to amend the Corporations Certificate of
Designation, Preferences and Rights governing its Class
A, Series 1 Preference Shares to induce Mirtronics to
convert its debt holdings in the Corporation into an
equity position, shall recommend to the holders of
Preference Shares, that the Amended Certificate of
Designation, Preferences and Rights of Class A, Series
1 Preference Shares filed with the State of Delaware
Office of Secretary of State on June 4, 1992, be
amended in accordance with Section 242 of the Delaware
General Corporation Law to effect the following
changes:
a) to decrease the number of votes per share of
Preference Stock from five (5) to two (2);
b) to decrease the Preference Stock conversion rate
from five (5) shares to two (2) shares of Common Stock
for each share of Preference Stock;
c) to provide the holders of Preference Stock (as
defined below) the right, at any time and from time to
time, to require the Corporation to redeem the
Preference Stock together with all accrued and unpaid
dividends thereon; and
<PAGE> 2
d) to provide the holders of Preference Stock with
certain protections against diminution of the
Corporation's assets and certain organic changes in the
existence of the Corporation.
The entire text of the Certificate of Designation, as
amended shall read as follows:
1. Designation. The series of Preferred Stock
provided for herein shall be designated as Class A, Series 1
Preference Shares (the "Preference Stock") and the number of
authorized shares constituting the Preference Stock shall be
2,000,000.
2. Dividends. The holders of Preference Stock (the
"Preferred Holders") shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally
available for the purpose, cumulative cash dividends, payable
quarterly on the last business day of March, June, September and
December in each year, commencing June 1995, at a rate per share
equal to the interest rate charged by The First Bank of the
Americas, New York to their most creditworthy customers, on the
stated value thereof. For purposes of calculating dividends
only, the stated value of the Preference Stock shall be $1.00 per
share.
3. Voting Rights. Preferred Holders shall have the
following voting rights:
A. Each share of Preference Stock shall entitle
the holder thereof to two (2) votes on all matters submitted
to a vote of the Corporation's stockholders;
B. Except as otherwise provided herein or by law,
Preferred Holders and the holders of Common Stock shall vote
together as one class on all matters submitted to a vote of
the Corporation's stockholders;
director
C. For as long as any shares of Preference Stock shall
be issued and outstanding, the number of directors
constituting the Board of Directors of the Corporation shall
be increased by one and Preferred Holders shall have, in
addition to the rights set forth in Paragraphs A, B and D,
the special right, voting separately as a single class, to
elect one director of the Corporation to fill such newly
created directorship at the next succeeding annual meeting
of stockholders (and at each succeeding annual meeting of
stockholders thereafter until such right shall terminate as
<PAGE> 3
hereinafter provided).
At each meeting of stockholders at which the
Preferred Holders shall have the right to vote separately as
a single class, the presence in person or by proxy of the
holders of record of one-third of the total number of shares
of the Preference Stock then outstanding shall be necessary
and sufficient to constitute a quorum of such class for such
election by such holders as a class. At any such meeting or
adjournment thereof,
(i) the absence of a quorum of Preferred Holders
shall not prevent the election of directors other
than those to be elected by the Preferred Holders
and the absence of a quorum of the holders of any
other class of stock for the election of such
other directors shall not prevent the election of
the directors to be elected by the Preferred
Holders, and
(ii) in the absence of either or both such
quorums, a majority of the holders present in
person or by proxy of the class or classes which
lack a quorum shall have the power to adjourn for
the period of up to 30 days the meeting for the
election of directors which they are entitled to
elect from time to time without notice other than
announcement at the meeting until a quorum shall
be present.
Each director elected by the Preferred Holders as
provided in this Paragraph C shall hold office until the
annual meeting of stockholders next succeeding his election
or until his successor, if any, is elected by such Preferred
Holders and qualified.
In case a vacancy shall occur of the director
elected by the Preferred Holders as provided in this
Paragraph C, such vacancy may be filled for the unexpired
portion of the term by vote of such Preferred Holders given
at a special meeting of such Preferred Holders called for
that purpose; and
D. The consent of the holders of at least a
majority of the outstanding shares of the Preference Stock,
voting separately as a single class, in person or by proxy,
either in writing without a meeting or at a special or
annual meeting of stockholders called for the purpose, shall
be necessary to:
(i) amend the Certificate of Incorporation, including
the provisions of the Certificate of Designations,
<PAGE> 4
Preference and Rights of Class A, Series 1 Preference
Shares which embodies this resolution;
(ii) amend the Corporation's By-laws;
(iii) authorize, effect, approve or validate (x) the
merger or consolidation of the Corporation into or with
any other corporation, (y) the sale of all or
substantially all of the assets of the Corporation, or
(z) the dissolution of the Corporation;
(iv) create, assume, incur or otherwise become or
remain obligated in respect of any indebtedness for
borrowed money or any other liability evidenced by
bonds, debentures, notes or similar instruments, in
excess of $100,000.00;
(v) become liable with respect to any obligation of any
other person, except by endorsement of negotiable
instruments for deposit or collection in the ordinary
course of business;
(vi) create, assume, incur, permit, or suffer to exist
any lien, charge or encumbrance (together, "Liens")
upon or with respect to any of its assets, whether now
owned or hereafter acquired, or upon any income or
profits therefrom except Liens (a) in effect on the
date hereof, (b) for taxes and other governmental
charges, (c) of materialmen, mechanics, carriers,
warehousemen or landlords incurred in the ordinary
course of business, or (d) incidental to either the
ordinary and normal conduct of its business or the
ownership of its assets, provided that in the case of
(b) or (c), payment is not yet due or is being
contested by appropriate proceedings and, in the case
of (d), the Liens are not incurred in connection with
the creation or assumption of indebtedness and do not
materially impair the Borrowers' use of assets in their
respective businesses;
(vii) purchase or acquire (a) assets constituting the
business or a division or operating unit of any person,
corporation, association or other entity ("Person") or
(b) the stock, securities or obligations of an Person
except (1) current trade and customer accounts
receivable for goods sold or payable in accordance with
customary trade terms, (2) notes accepted in the
ordinary course of business, (3) direct obligations of
the United States of America with a maturity of not
more than 365 days, (4) certificates of deposit of, or
other time deposits with, banks having total capital in
excess of one billion dollars maturing in not more than
<PAGE> 5
365 days, and (5) investments in open-end regulated
investment companies which invest in money market and
other debt securities with maturities generally not
exceeding one year;
(viii) lend money or extend credit, or make or permit
to be outstanding loans or advances, to any Person,
except, in the ordinary course of business, loans or
advances (a) in the nature of prepayments to
subcontractors and suppliers and (b) as contemplated by
paragraph 3(D)(vii)(b)(1) and (2);
(ix) make any capital expenditure during any fiscal
year for fixed assets exceeding $100,000.00;
(x) enter into or be a party to any arrangement entered
into after the date hereof providing for the leasing to
the Corporation or any of its subsidiaries of real or
personal property;
(xi) declare, pay or make any dividend or other
distribution on any shares of the Corporation's capital
stock or redeem, retire, purchase or acquire directly
or indirectly any shares of its capital stock now or
hereafter outstanding or return any capital to its
stockholders;
(xii) effect any transaction after the date hereof
with, or on behalf of, any affiliate (a) not in the
ordinary course of the Corporation's business or (b) on
a basis less favorable to the Corporation than would be
the case if such transaction had been effected with a
Person who is not an Affiliate or make any transfer or
payment to or directly or indirectly for the benefit of
any Affiliate without receiving full value therefor or
make any transfer or cash or non-cash payment
(including any such payment in the form of fringe
benefits such as personal use of company facilities or
resources) to or directly or indirectly for the benefit
of any Affiliate in respect of any services;
(xiii) issue (originally, as opposed to issue on
transfer), sell or otherwise dispose of after the date
hereof (a) any shares of any class of its capital stock
(except pursuant to an offering registered pursuant to
the Securities Act of 1933, as amended, or any warrants
or options outstanding as of the date hereof, (b) any
options or warrants to purchase or rights to acquire or
subscribe for any such shares except for options to
purchase not more than 300,000 shares of Common Stock
pursuant to the Corporation's 1990 Non-Qualified Stock
Option Plan for employees, or (c) any securities,
<PAGE> 6
convertible into any such shares;
(xiv) sell with recourse, or discount or otherwise sell
for less than the face value thereof, any substantial
portion of its notes or accounts receivable; or
(xv) permit any of its Subsidiaries to violate any of
the covenants set forth in this Article 3.
4. Certain Restrictions.
A. Whenever quarterly dividends or other
dividends or distributions payable on the Preference Stock as
provided in Section 2 are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not
declared, on shares of Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking
junior (either as to dividends or upon
liquidation, dissolution or winding up) to the
Preference Stock:
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a
parity (either as to dividends or upon
liquidation, dissolution or winding up) with the
Preference Stock except dividends paid ratably on
the Preference Stock and all such parity stock on
which dividends are payable or in arrears in
proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior
(either as to dividends or upon liquidation,
dissolution or winding up) to the Preference
Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of
any stock of the Corporation ranking junior
(either as to dividends or upon dissolution,
liquidation or winding up) to the Preference
Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Preference Stock, or
any shares of stock ranking on a parity with the
Preference Stock, except in accordance with a
purchase offer made in writing or by publication
<PAGE> 7
(as determined by the Board of Directors) to all
holders of such shares upon such terms as the
Board of Directors, after consideration of the
respective annual dividend rates and other
relative rights and preferences of the respective
series and classes, shall determine in good faith
will result in fair and equitable treatment among
the respective series or classes.
B. The Corporation shall not permit any
subsidiary of the Corporation to purchase or otherwise acquire
for consideration any shares of stock of the Corporation unless
the Corporation could, under Paragraph A of this Section 4
purchase or otherwise acquire such shares at such time and in
such manner.
5. Liquidation Preference. Upon the dissolution,
liquidation or winding up of the Corporation, whether voluntary
or involuntary, the Holders shall be entitled to receive out of
the assets of the Corporation available for distribution to
stockholders, before any payment or distribution shall be made on
the Common Stock, the amount of $1.00 per share, plus an amount
equal to all dividends, whether or not declared, on such shares
accrued and unpaid thereon to the date of the final distribution.
6. Conversion Rights
A. General. At the option of the holder or
holders thereof, shares of Preference Stock may be converted (the
"Conversion Right"), at any time or from time to time while
outstanding, at the par value thereof into fully and
nonassessable shares of Common Stock, at the rate of two (2)
shares of Common Stock for each share of Preference Stock (the
"Conversion Price"). The conversion of shares of Preference
Stock shall be effected by and upon surrender by the holder
thereof of the certificates therefore together with written
notice of the election of such holder to exercise these
conversion rights herein provided (the "Conversion Notice").
B. Issuance of Certificates. The conversion of
shares of Preference Stock shall be deemed to have been effected
on the date of receipt by the Secretary of the Corporation of the
Conversion Notice, accompanied by documents satisfactory to the
Corporation as provided in Paragraph A above, and such date is
referred to herein as the "Conversion Date". As promptly as
practicable thereafter, the Corporation shall issue and deliver
to or upon the written order of the holder delivering the
Conversion Notice a certificate or certificates for the number of
whole shares of Common Stock to which such holder is entitled and
a check or cash with respect to any fractional interest in a
share of Common Stock as hereinbelow provided. The person in
whose name the certificate or certificates for Common Stock are
<PAGE> 8
to be issued shall be deemed to have become a stockholder of
record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event
such holder shall be deemed to have become a stockholder of
record on the next succeeding date on which the transfer books
are open, but the Conversion Price shall be that in effect on the
Conversion Date.
C. Reservation of Shares. The Corporation shall
reserve, free from preemptive rights, out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preference Stock, sufficient
shares of Common Stock to provide for the conversion of all
outstanding Preference Stock. In accordance with the applicable
Delaware laws and regulations, the Corporation shall, from time
to time, increase its number of authorized shares sufficient to
permit the conversion of all outstanding Preference Stock.
D. Subdivision, Consolidation or Changes.
1. If at any time while the Conversion Right
is outstanding, the Corporation's outstanding Common Stock shall
be subdivided, redivided or changed into a greater number or
consolidated into a lesser number of Common Stock, or the
outstanding Common Stock shall be reclassified, upon the exercise
of its Conversion Right, the holder of shares of Preferred Stock
shall be entitled to receive and shall accept in lieu of the
number of shares of Common Stock then subscribed for by it, but
for the same aggregate consideration payable, the aggregate
number of shares of Common Stock of the appropriate classes that
the holder of shares of Preferred Stock would have been entitled
to receive as a result of such subdivision, redivision, change,
consolidation or reclassification if, on the record date or the
effective date for such action, it had been the registered holder
of that number of subscribed shares of Common Stock.
2. If at any time while the Conversion Right
is outstanding, there is a capital reorganization of the
Corporation not covered in Section 6(D)(1), or a consolidation or
merger of the Corporation with or into any other corporation, or
the sale of all or substantially all of the properties and assets
of the Corporation to any other corporation, the holder of
Preferred Stock shall be entitled to receive and shall accept in
lieu of the number of shares of Common Stock then subscribed for
by it, but for the same aggregate consideration payable therefor,
the number of shares or other securities or property of the
Corporation or of the corporation resulting from such merger or
consolidation or to which such sale may be made, as the case may
be, that the holder of Preferred Stock would have been entitled
to receive on such capital reorganization, consolidation, merger
or sale if, on the record date or the effective date of such
action, it had been the registered holder of that number of
<PAGE> 9
subscribed shares of Common Stock.
3. The adjustments provided for in this
Section 6(D), shall be cumulative.
7. Additional Classes or Series
The Corporation shall not authorize or issue shares of
the capital stock of the Corporation with voting, liquidation,
dividend or other rights and preferences superior to the
Preference Stock without the consent of the holders of a majority
of the outstanding shares of the Preference Stock, voting as a
class.
8. Redemption
At any time, the holders of a majority of the issued
and outstanding Preference Stock may require the Corporation to
redeem all or any part of the then outstanding shares of
Preferred Stock at a price of $1.00 per share, together with all
accrued and unpaid dividends thereon on a dollar for dollar basis
(the "Redemption Price")."
SECOND: That thereafter, the sole stockholder entitled
to vote thereon executed a Written Consent in lieu of special
meeting, in accordance with Sections 228 of the Delaware General
Corporation Law, approving the amendment.
THIRD: That said amendment was duly adopted in
accordance with the provisions of Section 242 of the Delaware
General Corporation Law.
IN WITNESS WHEREOF, Firetector Inc. has caused this
amended certificate to be duly executed this 15th day of
March,1995.
FIRETECTOR INC.
By: /s/RICHARD H. AXELSEN
Richard H. Axelsen, President
Attest:
Marc Palker, Secretary
<PAGE>
<PAGE> 1
DEBT/EQUITY CONVERSION
AGREEMENT
THIS DEBT/EQUITY CONVERSION AGREEMENT (the
"Agreement"), dated as of March 15, 1995 by and between
FIRETECTOR INC., a Delaware corporation having its executive
offices at 262 Duffy Avenue, Hicksville, New York 11801
("Firetector") and Mirtronics Inc., an Ontario corporation having
its executive offices at 106 Avenue Road, Toronto, Ontario M5R
2H3 ("Mirtronics").
Recitals
A. Firetector and its affiliates and subsidiaries are
and have been indebted to Mirtronics and its subsidiaries for
various amounts for materials, loans and miscellaneous advances
(the "Debt").
B. The First Bank of the Americas, New York, New York
(the "Bank") has advised Firetector that in order to maintain its
credit facility, Firetector must arrange for the forbearance by
Mirtronics of any demand of repayment of the Debt.
C. Furthermore, Firetector's Common Stock, $.001 par
value (the "Common Stock") is listed for quotation on the
automatic quaotation system of the National Association of
Securities Dealers, Inc. ("NASDAQ"), trading under the symbol
"FTEC". Firetector has been notified that the Common Stock no
longer meets the minimum continued listing criteria of NASDAQ and
will, therefore, be delisted from NASDAQ. The conversion of part
or all of the Debt into equity in Firetector would bring
Firetector into compliance with the minimum continued listing
criteria.
D. In order to maintain the Common Stock listing on
NASDAQ and to facilitate Firetector's ability to maintain its
credit facility, Mirtronics has agreed to forbear making any
demand for repayment of the Debt and subordinate the Debt to the
Bank in the manner reasonably requested by the Bank, in exchange
for Firetector granting to Mirtronics the right to convert all or
part of the Debt into shares of Firetector's Class A, Series 1
Preference Shares ("Preferred Stock").
NOW THEREFORE, in consideration of the foregoing and of
the premises herein contained, the mutual covenants and
agreements and certain other good and valuable consideration, the
receipt and sufficiency of which each of the parties hereby
acknowledges, and subject to the terms and conditions provided in
this Agreement, Firetector and Mirtronics agree as follows:
<PAGE> 2
1. Conversion Right. Mirtronics shall have the
right, exercisable from time to time and until the close of
business on September 30, 1996, to convert all or part of the
Debt into shares of Preferred Stock at the conversion price of
$1.00 per share, or one share of Preferred Stock for each dollar
of Debt so converted (the "Conversion Right"). All shares of
Preferred Stock acquired by Mirtronics pursuant to the Conversion
Right are referred to herein as "Converted Shares". Mirtronics
shall have the right to specify which portion of the Debt is
being converted.
2. Investment Representations and Covenants
2.1 Investment Representation. Mirtronics will
acquire the Converted Shares (which for the purpose of this
Section 2 includes any shares of Firetector's Common Stock, $.001
par value (the "Common Stock") issuable in exchange for Preferred
Stock) for its own account and for investment only and not with a
view to distribution or resale thereof within the meaning of such
phrase as defined under the Securities Act of 1933, as amended
(the "1933 Act"). Mirtronics will not dispose of any part or all
of the Converted Shares in violation of the provisions of the
1933 Act and the rules and regulations promulgated under such Act
by the Securities and Exchange Commission and all applicable
provisions of State securities laws and regulations.
2.2 Legend. The certificate or certificates
representing all Converted Shares shall bear a legend in
substantially the following terms:
"The Shares represented hereby have not been registered
under the Securities Act of 1933, as amended (the "1933
Act") and have been acquired for investment and not with a
view to distribution or resale. Such shares may not be
sold, mortgaged, pledged, hypothecated or otherwise
transferred except pursuant to an effective registration
statement under the 1933 Act or an opinion of counsel
satisfactory to Firetector Inc. to the effect that an
exemption from the registration requirement under the 1933
Act is available.
2.3 Acknowledgement of Restrictions. Mirtronics
acknowledges being informed that the Converted Shares will be
unregistered and must be held indefinitely unless subsequently
registered under the 1933 Act or an exemption from such
registration is available and that Firetector has no obligation
to register the Converted Shares for Mirtronics's account.
3. Certificate of Designation, Preferences and
Rights. Firetector agrees to prepare for Mirtronics approval, a
resolution of Firetector's Board of Directors recommending the
amendment of the Certificate of Designation, Preferences and
<PAGE> 3
Rights relating to the Prefered Stock, filed with the State of
Delaware Secretary of State on January 16, 1992 and amended June
4, 1992. The amendment to be prepared shall effect the following
changes in the Certificate of Designation, Preferences and
Rights:
a) to decrease the number of votes per share of
Prefered Stock to two (2);
b) to decrease the Preference Stock conversion rate
to two (2) shares of Common Stock for each share of
Prefered Stock; and
c) to provide the holders of Prefered Stock the right
to require the Corporation to redeem the Prefered Stock
together with accrued and unpaid dividends thereon at
any time and from time to time, in whole or in part;
and
d) to provide the holders of Preference Stock with
certain protections against diminution of the
Corporation's assets and certain organic changes in the
existence of the Corporation.
Mirtronics agrees to cast its shares of Prefered Stock in favor
of the amendment detailed herein.
4. Amendments; Etc. No amendment or waiver of any
provision of this Agreement, or consent to any departure
therefrom, shall be effective against any party unless the same
shall be in writing and signed by such party, and then such
waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
5. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing and
addressed to the parties at the address of such parties specified
in the recitals to this Agreement or, as to either party, at such
other address as shall be designated by such party in a written
notice to each other party complying as to delivery with the
terms of this Section. All such notices and other communications
shall be effective when delivered in writing, addressed as
aforesaid.
6. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
York, without regard to its conflict of law provisions.
7. Headings. Section headings have been inserted
only as a matter of convenience of reference and shall not be
used in the interpretation of any provision of this Agreement.
<PAGE> 4
8. Counterparts. This Agreement may be executed in
any number of counterparts, all of which together shall
constitute one and the same instrument and any party hereto may
execute this instrument by signing one or more counterparts.
9. Assignment. Assuming compliance with applicable
law, Mirtronics may assign all or any part of its rights and
obligations under this Agreement, the Debt and the Preferred
Stock to any person or persons.
10. Further Assurances. Each of the parties agrees
that at any time and from time to time, it will execute and
deliver such further documents or cause to be done such further
acts and things as any party may reasonably request in order to
effect the purposes of this Agreement.
Execution
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers,
all as of the day and year first above written.
FIRETECTOR INC.
By /s/MARC PALKER
Name: Marc Palker
Title: Secretary and Treasurer
MIRTRONICS INC.
By /s/DANIEL S. TAMKIN
Name: Daniel S. Tamkin
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Consolidated Statement of Financial Condition at March
31, 1995 (Unaudited) and the Consolidated Statement of Income for
the Six Months Ended March 31, 1995 (Unaudited) and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 60,566
<SECURITIES> 0
<RECEIVABLES> 3,827,125
<ALLOWANCES> 128,101
<INVENTORY> 1,808,940
<CURRENT-ASSETS> 5,738,799
<PP&E> 955,805
<DEPRECIATION> 470,772
<TOTAL-ASSETS> 6,845,004
<CURRENT-LIABILITIES> 4,850,133
<BONDS> 0
<COMMON> 3,183
0
425,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,845,004
<SALES> 6,601,416
<TOTAL-REVENUES> 6,601,416
<CGS> 4,135,232
<TOTAL-COSTS> 4,135,232
<OTHER-EXPENSES> 2,228,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,287
<INCOME-PRETAX> 73,664
<INCOME-TAX> 0
<INCOME-CONTINUING> 73,664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,664
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
