<PAGE>
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, 1996
-------------------------
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 13, 1996, 3,354,828 shares of Registrant's
Common Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
Part I - FINANCIAL INFORMATION
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet
Unaudited
<TABLE>
<CAPTION>
June 30,
1996
----------------
<S> <C>
ASSETS
Current assets:
Cash $ 565,262
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $191,445 3,417,650
Accounts receivable from affilitaed companies 374,169
Inventories 2,243,107
Prepaid expenses and other current assets 268,466
-------------
Total current assets 6,868,654
-------------
Property, Plant and Equipment at cost, less
accumulated depreciation and
amortization of $504,371 484,917
Software Development Costs, net 67,841
Other Assets 393,948
Deferred Taxes 302,500
-------------
Total assets $8,117,860
=============
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
<TABLE>
<CAPTION>
June 30,
1996
------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable bank $1,938,509
Other notes payable 48,048
Accounts payable and accrued expenses 1,607,364
Unearned service revenue 378,267
Current portion of capital lease obligations 5,354
---------------
Total current liabilities 3,977,542
Notes payable to bank, less current portion 303,573
Other notes payable, less current portion 295,835
Capital lease obligations, less current portion 4,093
Due to affiliated companies 141,472
--------------
Total liabilities 4,722,515
--------------
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
3,354,828 shares 3,355
Capital in excess of par 5,380,439
Deficit (2,663,449)
-----------
Total stockholders' equity 3,395,345
-----------
Total liabilities and stockholders' equity $8,117,860
===========
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
June 30,
1996 1995
---------------------
<S> <C> <C>
Net sales $2,632,125 $2,477,482
Service revenues 1,027,033 976,337
-----------------------
Total revenues 3,659,158 3,453,819
-----------------------
Cost of sales 1,899,150 1,512,968
Cost of service 503,694 560,843
Selling, general and administrative 1,031,026 1,157,209
Interest expense 69,659 78,861
Depreciation and amortization expense 60,305 53,000
Statutory insurance refund (3,444)
Union refund (21,807)
Other (income) net (4,810) (5)
----------------------
3,533,773 3,362,876
----------------------
Income from continuing operations before
provision (credit) for income taxes 125,385 90,943
Provision (credit) for income taxes:
Current
Deferred (47,500)
----------------------
Net income $ 172,885 $ 90,943
======================
Per share data: ----------------------
Net income $ 0.03 $ 0.02
======================
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
1996 1995
------------------------
<S> <C> <C>
Net sales $6,846,255 $6,984,079
Service revenues 3,350,297 3,071,156
------------------------
Total revenues 10,196,552 10,055,235
------------------------
Cost of sales 4,309,775 4,449,641
Cost of service 1,814,701 1,759,402
Selling, general and administrative 3,051,154 3,270,632
Interest expense 218,424 242,671
Depreciation and amortization expense 186,361 168,287
Statutory insurance refund (101,367)
Gain on sale of servcie contracts (208,571)
Union refund (21,807)
Other (income) net (16,077)
------------------------
9,232,593 9,890,633
------------------------
Income from continuing operations before
provision (credit) for income taxes 963,959 164,602
Provision (credit) for income taxes:
Current
Deferred (142,500)
------------------------
Net income $1,106,459 $ 164,602
========================
Per share data: -------------------------
Net income $ 0.17 $ 0.05
=========================
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For The Nine Months Ended
June 30,
1996 1995
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,106,459 $164,602
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization 213,963 168,287
Provision for doubtful accounts 55,000 45,000
Changes in operating assets and liabilities:
Accounts receivable 322,755 308,294
Inventories, prepaid expenses and other
current assets (458,914) (541,403)
Accounts receivable from affiliated
company (77,557) (59,631)
Other assets (3,636) (110,559)
Accounts payable and accrued expenses (372,178) 39,053
Unearned service revenue 54,129 (72,597)
Due to affiliated companies 2,507 249,450
---------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 842,528 190,496
INVESTING ACTIVITIES
Purchases of property and equipment (122,721) (95,342)
Software development costs (800)
---------------------
NET CASH USED IN INVESTING ACTIVITIES (123,521) (95,342)
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long term debt, notes payable
and capital lease obligations (335,389) (411,706)
Proceeds from revolving line of credit,
notes payable and capital
lease obligations 111,644 227,275
Proceeds from sale of Common Stock 70,000
---------------------
NET CASH USED IN FINANCING ACTIVITIES (153,745) (184,431)
---------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 565,262 (89,277)
Cash and cash equivalents at beginning
of period 94,258
---------------------
Cash and cash equivalents at end of period $565,262 $ 4,981
=====================
<FN>
See accompanying Notes to the Consolidated Financial Statements.
/TABLE
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1996
(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 nine
months ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending September
30, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the
Registrant Company and Subsidiary's annual report on Form
10-KSB for the year ended September 30, 1995.
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 $2,500,000. The credit facility provides for a $500,000 three
year term loan (with a seven year amortization) and a $2,000,000
revolving line of credit through March 31, 1997. 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, Mirtronics Inc. ("Mirtronics").
An affiliate of Mirtronics guaranteed minimum increases in
retained earnings of $100,000 for fiscal 1994 (with a maximum
guarantee of $100,000) and $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 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
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
NINE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
September 30, 1995, and continuing through June 30, 1996, the
Registrant was not in default of any of its financial covenants.
4. TRANSACTIONS WITH RELATED PARTIES
At June 30, 1996, the Registrant was indebted to Mirtronics and
its subsidiaries for materials, loans, and miscellaneous advances
in the aggregate amount of $141,472. 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 $202,668 at June 30, 1996. The Registrant has
a receivable from Mirtronics and its subsidiaries in the amount
of $374,169 at June 30, 1996.
In July 1994, in consideration of Mirtronics extending the term
of its letter of credit in connection with the Company's credit
facility (see Note 6) and making further advances to the Company,
the Company's Board of Directors restated the price, terms and
conditions of previously granted conversion rights and options to
Mirtronics. In addition, the Board also granted Mirtronics
500,000 additional options. Presently, Mirtronics has the right
to acquire up to an aggregate of 1,840,000 shares of common stock
at an exercise price of $.30 per share. The options expire on
December 31, 1998.
5. 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 sought legal damages in excess of $10,000,000 and
certain equitable remedies, was 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 set forth a breach of contract claim against a
customer of Casey who breached a contract with Casey. On March
28, 1996 the litigation was settled with agreements relating to
cross-licensing, royalty payments and other considerations.
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
NINE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
6. OTHER
On March 29, 1996, Systems Service Technology Corp. ("SST"), a
wholly owned subsidiary of the Registrant, sold selected assets
to Sirina Protection Systems Corp. ("Sirina") which included the
right to certain SST contracts to provide service or maintenance
to selected buildings. As consideration for the purchase of such
assets Sirina paid SST an aggregate of $378,000.
For the years 1990 through and including 1995, the Registrant,
upon review, discovered it had been overcharged by a statutory
employee related insurance fund in the amount of approximately
$256,000. The fund confirmed this amount and payment was made
within the fiscal quarter. The registrant also discovered that it
had been overcharged by an employee benefit fund in the amount of
approximately $53,000. Payment of this amount is expected within
the next fiscal quarter.
<PAGE>
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 $2,500,000. At June 30, 1996 the Registrant owed $2,242,082
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 $2,000,000 revolving line of credit through
March 31, 1997. 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. An affiliate
of Mirtronics had guaranteed minimum increases in retained
earnings of $100,000 for fiscal 1994 (with a maximum guarantee of
$100,000) and, if the credit facility was 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, 1995, and continuing through June 30, 1996, the
Registrant was not in default of any of its financial covenants.
Net cash provided by operations for the nine months ended June
30, 1996 amounted to $842,528 as compared to $190,496 for the
comparable prior year period. The primary reason for the
provision of cash was net income from operations of $1,106,459 as
compared to $164,602 for the comparable prior year period. The
reduction in trade accounts receivable of approximately $378,000
also contributed to the provision of cash for the nine months
ended June 30, 1996. This reduction relates primarily to the
collection of the settlement of litigation, and the collection of
the refund from statutory insurance overpayments. In addition,
the decrease in trade accounts receivable is attributable to a
program of negotiation of terms prior to the beginning of a
project, the monitoring of its terms during a project and
completing projects in a more timely fashion, resulting in faster
final payments. It is the intention of the Registrant to continue
this program throughout fiscal 1996.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)
(continued)
Results of Operations
The Registrant's product revenues during the three months ended
June 30, 1996 increased to $2,632,125 as compared to $2,477,482.
Product revenues during the quarter included approximately
$500,000 of billing as a general contractor, essentially as a
pass-through, with marginal profit. The overall decrease of
$137,824 in product sales for the nine month period was primarily
the result of delays in customer requirement/capacity to accept
shipment on current orders for transit and school projects. In
addition, the consolidation of the Registrant's New York fire
operations delayed certain other projects. Service revenues
during the three and nine month periods increased to $1,027,033
and $3,350,297 as compared to $976,337 and $3,071,156,
respectively. Service revenues for the nine months ended June 30,
1996 include licensing and royalty payments relating to
settlement of the litigation.
Gross profit on product revenues for the three and nine month
periods ended June 30, 1996 was 28% and 37% respectively, as
compared with 39% and 36% respectively, for the comparable 1995
period. The decrease in gross profit on product revenues for the
three months ended June 30, 1996 relates primarily to the
commencement of a job in which the Registrant is the general
contractor. General contractor jobs generally carry a nominal
gross profit percentage. Without the effects of the general
contractor revenues and related costs, gross profit for the three
month period would be 37%.
Gross profit on service revenues for the three and nine month
periods ended June 30, 1996 was 51% and 46%, respectively, as
compared with 43% for the comparable 1995 periods. Gross profit
improvement, notwithstanding a competitive market for service
related contracts, resulted from emphasis on controlling costs,
and the inclusion of licensing and royalty payments relating to
settlement of the litigation.
Net income from operating activities for the three and nine month
periods ended June 30, 1996 increased to $172,885 and $1,106,459,
respectively, as compared to net income of $90,943 and $164,602,
respectively, for the comparable 1995 period. This increase is
primarily attributable to improved service gross profit, initial
licensing and royalty payments resulting from litigation
settlement (net of legal expenses), statutory insurance refunds,
employee benefit refunds, and a gain of $208,571 on the sale of
selected service contracts. Management elected to dispose of
these service contracts which it considered marginal in order to
focus resources on priority business segments and to raise cash
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)
(continued)
Results of Operations (continued)
to fund performance of the order backlog. The realization of the
impact of personnel reductions, lower occupancy costs and other
cost reductions also contributed to the increase in net income.
After excluding approximately $500,000 of general contractor
billing (with nominal gross profit), the Registrant generated
increased earnings on substantially lower revenues.
The backlog of orders at June 30, 1996 amount to $9,322,400 as
compared to $8,508,079 at March 31, 1996, $7,186,000 at December
31, 1995 and $6,200,000 at September 30, 1995. Management expects
to improve profitability as the Registrant ships from its
increased product backlog. The continuing increase in backlog
derives from sale of integrated packaged systems in New York and
Texas. It is anticipated that at least 50% of the current backlog
will be completed by the end of fiscal 1997. Management also
expects profits to be impacted positively due to further
improvement in operating efficiencies, avoidance of probable
direct and indirect costs related to continued litigation and
further focus on higher margin niche marketing.
<PAGE>
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. Exhibits and Reports on Form 8-K.
a. Exhibits.
Ex-27 Financial data Schedule
b. Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter
ended June 30, 1996.
<PAGE>
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 13, 1996 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, 1996 (Unaudited) and the Consolidated Statement of Income for
the Nine Months Ended June 30, 1996 (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> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 565,262
<SECURITIES> 0
<RECEIVABLES> 3,609,095
<ALLOWANCES> 191,445
<INVENTORY> 2,243,107
<CURRENT-ASSETS> 6,868,654
<PP&E> 989,288
<DEPRECIATION> 504,371
<TOTAL-ASSETS> 8,117,860
<CURRENT-LIABILITIES> 3,977,542
<BONDS> 0
<COMMON> 3,355
0
675,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,117,860
<SALES> 10,196,552
<TOTAL-REVENUES> 10,196,552
<CGS> 6,124,476
<TOTAL-COSTS> 9,232,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,424
<INCOME-PRETAX> 963,959
<INCOME-TAX> 142,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,106,459
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
