SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-KSB-Annual or Transitional Report
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-17580
FIRETECTOR INC.
(Exact name of Small Business Issuer in its charter)
Delaware 11-2941299
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
262 Duffy Avenue, Hicksville, New York 11801
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (516) 477-4300
Securities registered pursuant to Section 12(b) of the Act: None Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements be reference in Part III of this Form 10-KSB ( )
State issuer's revenues for its most recent fiscal year: $13,614,000
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the average bid and ask prices for the Registrant's
Common Stock, $.001 par value per share, as of December 17, 1996 was
$2,204,371.94.
As of December 17, 1996, the Registrant had 3,548,400 shares of Common
Stock outstanding.
Documents Incorporated by Reference: Definitive Proxy Statement to be filed.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
Firetector Inc. ("Firetector" or the "Company") is a Delaware corporation
organized in October 1988 to acquire controlling interests in companies engaged
in the design, manufacture, sale and servicing of fire, life safety security,
energy management, intercom, audio-video communication and other systems.
Reference to Firetector or the Company include operations of each of its
subsidiaries except where the context otherwise requires. Firetector's business
is conducted through subsidiaries in New York City and Dallas Texas in three
principal market categories:
Engineered life safety systems
Engineered sound systems
Service & Maintenance
Firetector Products
Firetector designs, manufactures, markets and sells its own proprietary
life safety and communication systems and also engineers, markets and sells
systems and products manufactured by other parties. Firetector's proprietary
product line features the COMTRAK 1720 and 2000 Life Safety Systems and the
TELTRAK Communications System.
In 1973, New York City passed Local Law 5 requiring that all office
buildings of 100 feet or more be outfitted with smoke detectors, manual and
audio communicating systems for life safety and fire reporting purposes. In
anticipation of the demand that this legislation would create for equipment and
systems employing improved technology and design features, Firetector engaged in
extensive research and development which led to its proprietary COMTRAK 1720
Life Safety System which has been installed in scores of buildings since the
early 1980's.
To meet the challenges of more stringent code requirements and a sluggish
market for new construction, Firetector developed its new generation proprietary
COMTRAK 2000 Life Safety System which utilizes the latest technology to not only
meet the current code requirements, and satisfy the "wish list" of current
COMTRAK customers, but many likely future code requirements as well. One of the
improvements incorporated into the COMTRAK 2000 is a Fire Command Station which
offers a color CRT display system along with three sectional displays. These
features provide the operator with a wide variety of pertinent information,
allowing for quicker response, which is critical in an emergency. In addition,
the expanded memory capability of the new Fire Command Station enables a single
station to control multi-building projects and permits simplified operation.
COMTRAK 1720 and 2000 Systems are operating in approximately 100 buildings
in New York City. Firetector has approvals from Factory Mutual and various New
York City agencies for the COMTRAK 1720 and COMTRAK 2000 System.
TELTRAK Communications Systems. In the early 1980s, Firetector began
investigating the intercom market and the possibilities of utilizing its
computerized multiplex technology for this market. Significant construction of
new high-rise housing occurred in the 1970s and 1980s and increased the
potential demand for technologically advanced intercom systems. To meet this
demand, Firetector developed a micro-processor-based combination intercom and
security system using Casey's multiplex technology. The TELTRAK I intercom and
<PAGE>
security system is capable of a variety of accessory functions in addition to
its basic intercom and security function. Firetector added video capabilities to
its TELTRAK I technology and created the TELTRAK II, for installation in luxury
condominium, cooperative and apartment buildings. Over 16,000 TELTRAK I and II
units have been sold. In 1991, the redesigned TELTRAK III intercom/security
station was introduced, with enhanced features to expand its use and
competitiveness in the face of the reduced market for these products. New
features, such as public address, enable important messages to be given to
building occupants either locally or by groups in case of emergency.
Other Products
In the past three years Firetector has sought to diversify its product lines
to establish a greater base to absorb product support, R & D and other overhead
and to provide product and customer diversification. To that end, Firetector has
augmented its established position in marketing engineered life safety systems
(proprietary and third party) by developing a significant business in engineered
sound systems for application to a variety of users including hospitals,
educational facilities and transit facilities (e.g. subway stations). Firetector
has developed a focused unit with a high level of experience to penetrate this
niche market with significant success as a substantial portion of Firetector's
order position derives from this effect. In addition, Firetector organized new
marketing units to focus on marketing, engineering and servicing systems and
products manufactured by third parties, particularly national manufacturers.
These units are service oriented organizations which focus on close
relationships with customers and key suppliers.
In 1993, Firetector acquired assets of a company which manufactured and
marketed sophisticated products and on-board information and communication
systems with applications for municipal transit carriers, long-distance
passenger carriers and bus and train builders. Firetector has integrated this
operation into its New York division and has to date supplied products to
customers such as ABB Traction, Sumitomo, Kawasaki, Morrison-Knudsen, the New
York City Transit Authority and AMTRAK.
Service
Firetector continues to put an increasing priority on the development of an
integrated and efficient service organization. Sales personnel have been
dedicated to securing service contracts and are intensifying efforts to market
service to COMTRAK and other Firetector projects coming out of warranty and the
renewal of such contracts. To improve efficiencies and productivity, Firetector
organized a division to perform cleaning on life safety systems, which was
previously subcontracted to an external entity. To improve customer service,
Firetector maintains an office in New York City which houses its New York
service management.
General Sound (Texas) Company
Firetector conducts business in Texas through its subsidiary, General Sound
(Texas) Company, which distributes, services, installs and designs a variety of
sound, fire alarm, intercom and security systems in the Dallas/Ft. Worth, Texas
area. General Sound concentrates its sales effort on the commercial market and
schools. General Sound provides its customers, primarily electrical contractors,
with engineered systems, assistance in design, installation support and
post-installation service.
General Sound has non-exclusive distribution agreements for the Dallas/Ft.
Worth area with Notifier, Dukane, and other manufacturers. The product mix and
dependence on individual suppliers varies from year to year depending on
customer requirements and market trends.
<PAGE>
Research and Development
During the fiscal years ended September 30, 1996 and 1995, Firetector spent
approximately $97,000 and $160,000, respectively, for research and development
(including capitalized software development costs in fiscal 1995 of $14,000) of
Firetector's life safety and communication systems.
Customers and Suppliers
For the fiscal years ended September 30, 1996 and 1995, no customers or
suppliers accounted for more than 10% of Firetector's revenues.
Regulations
Firetector believes that it is in compliance with applicable building codes,
zoning ordinances, occupational, safety and hazard standards and other Federal,
state and local ordinances and regulations governing its business activities.
Competition
Firetector's business is competitive; some of Firetector's competitors may
have greater financial resources and may offer a broader line of fire and life
safety products. Firetector also faces competition in the servicing of systems
which it sells. Accordingly, even though Firetector may sell and install a fire
and life safety control and communications system, it may not receive the
contract to service that system. Firetector, however, believes that it can
effectively compete with any entity which conforms with applicable rules and
regulations.
Employees
Firetector and its subsidiaries have 121 full time employees, including 38
that are covered by union contracts in New York.
Business Conditions
Firetector believes that its labor and material sources are sufficient and
that other than normal competitive factors, and what is discussed above or under
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION", Firetector's
operations and industry do not have any special characteristics which may have a
material impact upon its future financial performance.
Patents and Trademarks
The Company does not have any patents on its systems, but, it uses
proprietary technology which it seeks to protect as trade secrets. The
"Firetector", "Casey Systems" and "COMTRAK" trademarks are registered with the
United States Patent and Trademark Office.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 14,800 square feet of office,
manufacturing and warehouse space in Hicksville, New York. The lease runs for an
initial term from March 1, 1995 through February 29, 2000, with a five year
renewal option. The rental schedule provides for monthly rent of $10,175 in the
first year increasing to $11,950 during the final four years of the initial term
and $15,785 during the final year of the renewal term.
The Company leases approximately 3,000 square feet of office and warehouse
space in New York City. The lease term runs from May 13, 1994 through May 12,
2004. The lease agreement provides for annual rental fees of $51,941.
<PAGE>
The Company leases a 7,700 square foot office and warehouse facility in
Richardson, Texas, a suburb of Dallas, pursuant to a lease expiring on April 30,
1998 providing for annual rent on a net basis of $40,200 escalating annually to
$47,880 in the final year of the lease. The Company has a 24 month renewal
option on the lease which would allow for maximum rent of $51,975 and tenant
responsibility for any increase in common area expenses over the 1988 base year.
Management believes there is sufficient space at this facility for its current
and intended business.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of its operations, the Company has been or, from time
to time, may be named in legal actions seeking monetary damages. While the
outcome of these matters cannot be estimated with certainty, Management does not
expect, based upon consultation with legal counsel, that they will have a
material effect on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Firetector's Common Stock has been traded on the National Association of
Securities Dealer's Inc. Automated Quotation System ("NASDAQ") since April 11,
1989 under the "FTEC" symbol. The following table shows the high and low bid and
ask quotations for each fiscal quarter from December 31, 1994 through September
30, 1996 which quotations were obtained from the National Association of
Securities Dealers Inc.
Common Stock
Quarter Ended BID ASK
High Low High Low
---------------------------------------------
December 31, 1994 9/16 1/4 21/32 7/16
March 31, 1995 1/2 3/16 9/16 1/4
June 30, 1995 1 7/32 15/32 1 5/16 9/16
September 30, 1995 1 13/16 1 1/32 2 1 5/32
December 31, 1995 1 5/8 15/16 1 3/4 1 1/8
March 31, 1996 1 1/2 1 1/8 1 5/8 1 1/4
June 30, 1996 2 3/8 1 3/16 2 7/16 1 1/4
September 30, 1996 2 1/4 1 1/2 2 5/16 1 5/8
The above quotations represent prices between dealers, do not include
retail markups, markdowns or commissions and may not represent actual
transactions. As of December 17, 1996, there were 522 record holders of
Firetector's Common Stock.
On December 17, 1996 the bid and ask prices for the Common Stock were 1 and
1 1/8, respectively.
The Company has not paid any cash dividends on its Common Stock. Payment of
cash dividends in the foreseeable future is not contemplated by the Company.
Whether dividends are paid in the future will depend on the Company's earnings,
capital requirements, financial condition along with economic and market
conditions, industry standard and other factors considered relevant to the
<PAGE>
Company's Board of Directors. Payment of dividends is restricted in certain
cases by the Company's credit facilities. The Company's Preferred Stock would be
entitled to a dividend preference over the Common Stock. Accordingly, no
assurance can be given as to the amount or timing of future dividend payments,
if any.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Liquidity and Capital Resources
In August 1994, Firetector completed a refinancing with a New York City
bank providing for a $500,000 three year term loan with a seven year
amortization period and a $2,250,000 (subsequently reduced to $2,000,000)
revolving credit facility (the "Credit Facility"). The Credit Facility provides
for interest at prime plus 2% (10.25% at September 30, 1996) on outstanding
balances, and an annual facility fee of .5%. Advances under the revolver are
measured against a borrowing base calculated on eligible accounts receivable and
inventory as defined. The Credit Facility is secured by all of the assets of
Firetector and all of its operating subsidiaries as well as a $500,000 letter of
credit provided by Firetector's largest stockholder, Mirtronics Inc., an Ontario
corporation ("Mirtronics").
First Corporate Capital Inc. an Ontario Corporation ("FCC") provided a
guaranty of minimum levels of net income in fiscal 1994 and 1995. FCC provided
a $100,000 subordinated loan to Firetector required by the 1994 guaranty. FCC is
affiliated with Mirtronics.
The Credit Facility includes various covenants, including maintenance of
sufficient qualifying accounts receivable and inventory to support the
outstanding loan balance. The Credit Facility expires on March 31, 1997 but the
Company expects to negotiate a renewal and/or extension of the Credit Facility.
If the lender demands repayment of all indebtedness at expiration, Firetector
would not be in a position to repay all of this indebtedness without assistance
from affiliates. There can be no assurance that affiliates would or could
provide such assistance.
The Company had $954,000 of net cash provided from operating activities
during its fiscal 1996, primarily the result of an operating profit of
$1,042,000. The decrease in trade accounts receivable was primarily due 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
Company to continue this program in fiscal 1997.
The ratio of Firetector's current assets to current liabilities increased
to approximately 1.62 to 1 at September 30, 1996 from 1.38 to 1 at September 30,
1995.
The Company further anticipates meeting its future cash requirements
through a cost reduction program, acceleration of the collection of receivables,
reduction of inventory levels and continuing operating profits.
As of September 30, 1996 and September 30, 1995, Firetector and its
affiliates were indebted to Mirtronics and its subsidiaries and affiliates for
materials, loans and miscellaneous advances in the amount of $149,000 and
$139,000, respectively. The Company is also indebted to First Corporate Equity
Ltd., an affiliate of a director of Mirtronics, in the aggregate amount of
$205,000 at September 30, 1996. The Company had a receivable from Mirtronics and
its subsidiaries in the amount of $413,000 and $297,000 at September 30, 1996
and 1995, respectively.
<PAGE>
Firetector's terms of sale are net 30 days. However, the normal receivable
collection period is 60-120 days, exclusive of retainage, because certain
governmental regulations and the Company's frequent status as a subcontractor
(entitled to pro rata payments as the general project is completed) extend the
normal collection period. Firetector believes this is a standard industry
practice. Firetector's receivable experience is consistent with the industry as
a whole and will likely continue until the economic environment improves. While
this is an area of risk and concern, due to the proprietary nature of
Firetector's systems, many projects require Firetector's cooperation to secure a
certificate of occupancy and/or to activate/operate a life safety system, thus
assisting Firetector's collection of a significant portion or even total
payment, even when Firetector's immediate account debtor (contractor) has
liquidated and/or creditors have seized a project.
RESULTS OF OPERATIONS
Revenues and Net Income
As a result of Management's focus on cost reduction, improved efficiencies
and process and personnel restructuring, revenues increased less than 1% in
fiscal 1996 over fiscal 1995. Although product revenues decreased 2%, service
revenues increased 7%. This restrained growth was intentional as Management felt
it was necessary for the Company to generate significant positive cash flow
prior to targeting revenue growth. Based on the results in 1996 and the
resolution of legal disputes and sale of marginal service contracts (see below),
the Company is resuming its efforts to increase revenues. The increase in
service revenues resulted from a continued intense effort to secure service
contracts and call-in maintenance revenue on Firetector systems and other
systems. Service revenues in fiscal 1996 included licensing and royalty payments
relating to settlement of the litigation.
Gross Profit
Although management focused on controlling material cost and improved
project status and costing systems, the Company's gross profit on product sales
in fiscal 1996 decreased slightly to 35% from 36% in fiscal 1995. This is
primarily the result of the Company acting in the capacity as a general
contractor on certain projects, which generally involves a nominal gross profit
on subcontractor portions (e.g. installation labor). The Company pursued these
projects to secure future service revenues. In addition, a greater percentage of
revenues derived from the Texas Division, of which revenues did not contribute
significantly to the greater fixed overhead of the New York Division.
During fiscal 1996 gross profit on service revenues increased to 43% from
41% in fiscal 1995. Gross profit improvement, notwithstanding a competitive
market for service related contracts, results from emphasis on controlling
costs, and the inclusion of licensing and royalty payments relating to the
settlement of the litigation.
Net Income
Net income increased to $1,042,000 or $.15 per share in fiscal 1996 from
net income of $265,000 or $.06 per share in fiscal 1995. Net income before
provision (credit) for income taxes was $894,000 in fiscal 1996 which was an
increase in operating income of approximately $789,000 from fiscal 1995. The
increase in profitability results from reduced operating costs and repayment of
overcharges by a statutory employee related insurance fund and an employee
benefit fund in the amounts of approximately $256,000 and $53,000, respectively.
In addition, a subsidiary of the Company sold certain marginal service contracts
resulting in a gain of $209,000.The Company also settled litigation against a
<PAGE>
competitor with agreements relating to cross-licensing, royalty payments and
other considerations. The Company also experienced reduced interest charges of
approximately $39,000 due to reduced borrowings. Results in fiscal 1996 included
the impact of utilizing the tax benefit of net operating loss carryforwards of
$148,000 as Firetector returned to profitability. Firetector retains over
$2,000,000 of additional net operating loss carryforwards.
Results were also impacted as the New York Division shipped a much lower
than expected portion of its large order backlog due to project delays. The
Company has incurred personnel and other costs in anticipation of performing
this backlog. The Company expects to ship larger portions of the order backlog
in fiscal 1997 (which has been the case during the first two months of fiscal
1997).
While the repayments of overcharges, the gain on the sale of the service
contracts and litigation settlement are not of a recurring nature, all are
directly related to significantly reduced operating costs and/or increased
revenues in 1997 and beyond.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by 7.5% in fiscal
1996 over 1995. The impact of this decrease is due mainly to the Company being
overcharged by a statutory employee related insurance fund and an employee
benefit fund. The effect on selling, general and administrative expenses
amounted to approximately $154,000 and $22,000, respectively. In addition, the
Companies internal restructuring reduced duplicated general expenses. The
Company also experienced the effect of reduced legal and accounting fees in the
amount of approximately $85,000. This reduction was the result of a change in
accounting firms and a significant reduction of legal fees in relation to
settlement of the litigation.
Backlog
Firetector's backlog, excluding service, increased to $9,700,000 at
September 30, 1996 from $6,200,000 at September 30, 1995.
Plan of Operations
During fiscal 1997 Management intends to continue to focus on the reduction
of fixed overhead as well as to reduce variable costs through improved
efficiency and productivity while seeking to increase revenues in all three of
its principal market categories from new business and performing the large
existing order backlog. Enhancements to Firetector's management information
systems and methods of approving and monitoring project costs have been
improving Management's ability to pinpoint waste and/or third party (supplier or
customer) cost responsibility. The Company has also implemented a new computer
system which is intended to assist the Company in project and service costing
and financial projections. Assuming the continuation of the Credit Facility,
Management believes that Firetector will generate sufficient cash flow from
operations to meet its obligations.
Seasonality and Industry Trends
The Company's sales are slightly affected by seasonal changes.
INFLATION
The impact of inflation on the Company's business operations is not
material. Casey's labor costs are normally controlled by union contracts
covering a period of two years and its material costs have remained relatively
stable.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements required to be filed hereunder are
indexed at Page _ and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None
PART III
Incorporated by reference to Registrant's definitive Proxy statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit Page No.
3.1 Certificate of Incorporation of the Company, as
amended (Exhibit 3.1)(1)
3.2 By-Laws of the Company (2)
4.1 Specimen Common Stock Certificate (2)
10.1 Employment Agreement, dated as of October 15, 1991,
between the Company and Richard H. Axelsen (Exhibit 10.1)(3)
10.2 Master Grid Note (Secured Revolving Line of Credit), dated
August 25, 1994 between Firetector Inc. as Borrower and
The First Bank of The Americas as Lender (4)
10.3 Term Loan Agreement, dated August 25, 1994 between
Firetector Inc. as Borrower and The First Bank of The Americas
as Lender (4)
10.4 Subordination Agreement dated as of August 25, 1994
between Mirtronics Inc. and Firetector Inc. (4)
10.5 Employment Agreement, dated as of December 1, 1990 between
Casey Sound Systems, Inc. and Marc Palker (Exhibit 10.5)(3)
10.6 1990 Non-Qualified Stock Option Plan (Exhibit 10.18)(5)
10.7 Form of Option Agreement between Firetector Inc.
and Mirtronics Inc. (Exhibit 10.17)(3)
10.8 Form of Debt/Equity Conversion Agreement between
Firetector Inc. and Mirtronics Inc., as amended (Exhibit 10.21)(3)
10.9 Letter Agreement dated as of November 5, 1992, between
Firetector and Mirtronics (Exhibit 10.22)(1)
22.1 Subsidiaries of the Registrant (Exhibit 22.1)(1)
27 Financial Data Schedule
<PAGE>
- - --------
(1) Reference is made to the correspondingly numbered Exhibit to Amendment
No. 1 to the Company's Registration Statement on Form S-2, Registration No.
33-51472, filed with the Commission on December 23, 1992, which is incorporated
herein by reference.
(2) Reference is made to the correspondingly numbered Exhibit to Amendment
No. 1 to the Company's Registration Statement on Form S-1, Registration No.
22-26050, filed with the Commission on January 23, 1989, which is incorporated
herein by reference.
(3) Reference is made to the identified Exhibit to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended September 30, 1991, which Exhibit
is incorporated herein by reference.
(4) Reference is made to the correspondingly numbered Exhibit to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended September 30,
1994, which Exhibit is incorporated herein by reference.
(5) Reference is made to the identified Exhibit to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended September 30, 1990, which Exhibit
is incorporated herein by reference.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRETECTOR INC.
(Registrant)
By: /s/ Daniel S. Tamkin
Daniel S. Tamkin,
Chief Executive Officer and
Director
Dated: December 23, 1996
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/Daniel S. Tamkin Chief Executive December 23,1996
- - ---------------------- Officer and
Daniel S. Tamkin Director
/s/Richard H. Axelsen Chairman, December 23, 1996
- - ---------------------- and Director
Richard H. Axelsen
/s/Joseph Vitale President, Chief Operating
Officer and Director December 23, 1996
- - ----------------------
Joseph Vitale
/s/ Marc Palker Secretary, December 23, 1996
- - ---------------------- Treasurer,
Marc Palker Chief Financial Officer
and Director
/s/Henry Schnurbach Vice President December 23, 1996
- - ---------------------- and Director
Henry Schnurbach
<PAGE>
Index to Consolidated Financial Statements
Firetector Inc. and Subsidiaries
Item 7
Report of Independent Auditors ..........................................
Audited Consolidated Financial Statements
Consolidated Balance Sheet-September 30, 1996 ...........................
Consolidated Statements of Income
Years Ended September 30, 1996 and 1995 ................................
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 1996 and 1995 ................................
Consolidated Statements of Cash Flows
Years Ended September 30, 1996 and 1995 ................................
Notes to Consolidated Financial Statements ..............................
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Firetector Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Firetector
Inc. and Subsidiaries as of September 30, 1996 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the two
fiscal years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated statements referred to above present
fairly, in all material respects, the financial position of Firetector Inc. and
Subsidiaries as of September 30, 1996 and the results of their operations and
their cash flows for each of the two fiscal years in the period ended September
30, 1996 in conformity with generally accepted accounting principles.
New York, NY
December 9, 1996 MOORE STEPHENS, P.C.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet
September 30,
1996
-------------
ASSETS
CURRENT ASSETS:
Cash $ 497,000
Accounts receivable, principally trade, less
allowance for doubtful accounts of $ 134,000 3,251,000
Accounts receivable from affiliated companies 413,000
Inventories 2,095,000
Prepaid expenses and other current assets 256,000
Deferred taxes 195,000
----------
TOTAL CURRENT ASSETS 6,707,000
Property and equipment at cost, less accumulated
depreciation and amortization of $ 540,000 460,000
Software development costs, net 59,000
Other assets 361,000
Deferred taxes 179,000
----------
Total assets $7,766,000
==========
See accompanying notes.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
September 30,
1996
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable bank $ 2,024,000
Other notes payable 243,000
Accounts payable and accrued expenses 1,285,000
Unearned service revenue 573,000
Current portion of capital lease obligations 11,000
-----------
TOTAL CURRENT LIABILITIES 4,136,000
Other notes payable, less current portion 23,000
Capital lease obligations, less current portion 23,000
Due to affiliated companies 149,000
-----------
TOTAL LIABILITIES 4,331,000
-----------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 12)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, 2,000,000 shares
authorized, $1.00 par value; issued and
outstanding 675,000 shares 675,000
Common stock, 25,000,000 shares authorized,
$.001 par value; issued and outstanding
3,548,400 shares 4,000
Capital in excess of par 5,484,000
Retained Earnings (Deficit) (2,728,000)
-----------
TOTAL STOCKHOLDERS' EQUITY 3,435,000
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,766,000
===========
See accompanying notes.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Income
Years ended September 30,
1996 1995
----------------------------
Net sales $ 9,214,000 $9,408,000
Service revenues 4,400,000 4,119,000
---------- ----------
Total revenues 13,614,000 13,527,000
---------- ----------
Cost of sales 5,980,000 6,061,000
Cost of service 2,501,000 2,434,000
Selling, general and administrative 4,075,000 4,403,000
Interest expense 289,000 328,000
Depreciation and amortization expense 245,000 216,000
Statutory issurance refund (101,000)
Gain on sale of service contracts (209,000)
Union refund (22,000)
Other (income)- net (38,000) (20,000)
----------- -----------
12,720,000 13,422,000
=========== ===========
Income before provision
(credit) for income taxes 894,000 105,000
Provision (credit) for taxes:
Current 66,000 0
Deferred (214,000) (160,000)
---------- ----------
Net income $ 1,042,000 $265,000
========== ============
Per share data:
Net income $.15 $.06
========== ============
See accompanying notes.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Total Capital Retained
Stockholders' Preferred Stock Common Stock in Excess Earnings
Equity Shares Amount Shares Amount of Par (Deficit)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1994 $1,261,000 3,183,400 $3,000 $5,293,000 $(4,035,000)
-----------------------------------------------------------------------------------------------
Issuance of
Preferred Stock 675,000 675,000 675,000
Issuance of shares
from exercise of
options 18,000 60,000 18,000
Net income 265,000 265,000
-----------------------------------------------------------------------------------------------
Balance at
September 30, 1995 $2,219,000 675,000 $675,000 3,243,400 $3,000 $5,311,000 $(3,770,000)
------------------------------------------------------------------------------------------------
Issuance of shares
from exercise of
options 174,000 305,000 $1,000 $173,000
Net income 1,042,000 1,042,000
-----------------------------------------------------------------------------------------------
Balance at
September 30, 1996 $3,435,000 675,000 $675,000 3,548,400 $4,000 $5,484,000 $(2,728,000)
===============================================================================================
</TABLE>
See accompanying notes.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended September 30,
1996 1995
---------- --------
OPERATING ACTIVITIES
Net income $1,042,000 $265,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 282,000 252,000
Provision for doubtful accounts 70,000 60,000
Changes in operating assets and liabilities:
Accounts receivable 474,000 (47,000)
Inventories, prepaid expenses and other
current assets (493,000) (315,000)
Accounts receivable from affiliated companies (117,000) (80,000)
Other assets 130,000 (415,000)
Accounts payable and accrued expenses (694,000) 216,000
Unearned service revenue 249,000 (50,000)
Due to affiliated companies 11,000 127,000
--------- --------
NET CASH PROVIDED OPERATING ACTIVITIES 954,000 13,000
--------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (134,000) (132,000)
Software development costs (1,000) (7,000)
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES (135,000) (139,000)
--------- ----------
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long-term debt, notes payable
and capital lease obligations (651,000) (452,000)
Proceeds from revolving line of
credit notes payable and capital lease obligations 274,000 466,000
Proceeds from sale of Common Stock 55,000 18,000
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (322,000) 32,000
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 497,000 (94,000)
Cash and cash equivalents at beginning
of year 0 94,000
-------- ---------
Cash and cash equivalents at end of year $497,000 $0
======== =========
See accompanying notes
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1996
1. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at September 30, 1996, and reported amounts of
revenues and expenses during the fiscal year. Actual results could differ from
those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. The principal operating
subsidiaries are: Casey Systems Inc. ("Casey"), General Sound (Texas) Company
("GenSound"), Pyrotech Service Inc. ("Pyrotech"), Comco Technologies Inc.
("COMCO"), Systems Service Technology Corp. ("SST") and Amco Maintenance
Corporation ("AMCO"). Significant intercompany items and transactions have been
eliminated in consolidation. The Company is a subsidiary of Mirtronics, Inc.
("Mirtronics").
Business
The Company operates in one industry segment: the design, manufacture, sale and
service of life safety, fire, security, energy management and audio-video
communications systems for the construction industry.
Revenue Recognition
Sales are recognized when product is shipped to customers. Service revenue from
maintenance contracts is recognized on a straight-line basis over the terms of
the respective contract, which is generally one year. Non-contract service
revenue is recognized when services are performed.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are priced at the lower of cost (first-in, first-out) or market and
consist primarily of raw materials.
Property and Equipment
Property and equipment are stated at historical cost. Leases meeting the
criteria for capitalization are recorded at the present value of future lease
payments.
Depreciation and amortization of machinery and equipment and furniture and
fixtures are provided primarily by the straight-line method over their estimated
useful lives. The Company depreciates machinery and equipment over periods of 3
to 10 years and amortizes leasehold improvements and assets acquired under
capitalized leases over the life of the lease or their economic useful life,
whichever is shorter.
Other Assets
Other assets are comprised principally of the excess of cost over the fair value
of the assets acquired and the costs associated with the acquisition of certain
service contracts in the formation of Pyrotech, and selected assets and service
contracts in the formation of SST. The excess of cost over the fair value of the
assets acquired approximates $143,000 (net of accumulated amortization of
$31,000) and relates principally to the fiscal 1990 acquisition of GenSound (see
Note 11). This amount is being amortized over forty years under the straight
line method. The acquisition cost of the service contracts ($191,000) is being
amortized over five years which commenced October 1, 1992, under the straight
line method. The acquisition costs of selected assets and service contracts
($201,000) is being amortized over periods of three to fifteen years which
commenced April 1, 1994 (See Note 11), under the straight line method.
The Company evaluates the periods of goodwill amortization to determine whether
later events and circumstances warrant revised estimates of useful lives. The
Company also evaluates whether the carrying value of goodwill has become
impaired (see Note 14).
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Under SFAS No. 109, the
liability method is used to determine deferred tax assets and liabilities based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Earnings Per Share
Income per common and common equivalent share was computed on the basis of the
weighted average shares of common stock outstanding plus common equivalent
shares arising from the effect of stock options and warrants using the modified
treasury stock method which requires that excess proceeds not available to
repurchase shares of common stock are assumed to retire outstanding indebtedness
which resulted in an assumed interest savings of $10,000. Shares used in the
computation amounted to 6,860,159 and 6,763,654 for the years ended September
30, 1996 and 1995, respectively.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
Concentration of Credit Risk
The Company's operations are located in two large U.S. cities (New York City,
New York and Dallas, Texas), each of which is an independent market. The Company
grants credit to its customers, principally all of which are general or
specialized construction contractors, none of which individually constitutes a
significant portion of outstanding receivables. Approximately 75% of such
outstanding receivables at September 30, 1996 are due from customers in New
York.
Cash Concentration
At September 30, 1996, the Company had approximately $227,000 in financial
institutions that is subject to insured amount limitations.
Stock Option Policy
The Company uses the intrinsic value method to measure stock-based compensation
as prescribed by APB Opinion No. 25 and expects to continue to follow this
method after the adoption of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", in the next fiscal year (see
Note 14).
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Transactions with Related Parties
At September 30, 1996, the Company was indebted to Mirtronics (see Note 1) and
its subsidiaries for materials, loans and miscellaneous advances in the
aggregate amount of $149,000. Of this indebtedness, $101,000 is secured by a
pledge of all of the Company's assets and is subordinate to debt payable to the
Company's bank. The Company 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 $204,500 at September 30, 1996. This
indebtedness is secured by the assets of Casey and GenSound. These loans bear
interest at the Royal Bank's prime lending rate plus 4% (9.75% at September 30,
1996). The Company has a receivable from Mirtronics and its subsidiaries in the
amount of $413,000 at September 30, 1996.
First Corporate Capital Inc., an Ontario corporation ("FCC"), has provided the
Company's bank (under the credit facility - See Note 5) with an income guaranty
in consideration of which the Company has granted to FCC options to purchase
500,000 unregistered shares of the Company's common stock at $.30 per share
through December 31, 1999. In July 1996, FCC exercised 100,000 of these options
at $.30 per share (see Note 7). An officer of FCC is also a director of
Mirtronics.
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 5) 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.
In March 1995 the Company entered into a Debt/Equity Agreement with Mirtronics,
whereby Mirtronics will have the right until December 31, 1999, to convert all
or part of the Company'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.
In March 1995, Mirtronics converted $425,000 of debt into 425,000 shares of
Class A, Series 1 Preferred Stock and in May 1995, Mirtronics converted an
additional $250,000 of debt into 250,000 shares of Class A, Series 1 Preferred
Stock.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Transactions with Related Parties (continued)
At the termination of employment of an officer/director of the Company (other
than for cause), the officer has the right to cause the Company to repurchase up
to 25,312 shares of common stock from the officer/director at a price of $12.96
per share by means of a seven year installment promissory note bearing interest
of 4% per annum. The number of shares subject to this repurchasing agreement
will be reduced to the extent the officer/director is able to sell such shares
at specified prices to third parties prior to termination. On December 1, 1996
the officer exercised the option and commencing January 1, 1997 the Company will
repurchase 25,312 shares at a price of $12.96 payable monthly over seven years
at an interest rate of 4% per annum. In October 1991, the Company, as a
provision of a new four-year employment agreement with the officer/director,
granted options to purchase 8,750 shares of common stock at $1.00 per share
exercisable through December 31, 1999. This agreement also includes a clause not
to compete for eighteen months after termination.
In an agreement dated October 1, 1994, the Company granted the owners of a
maintenance contractor options to acquire 40,000 unregistered shares of the
Company's common stock. The exercise price of the options is $.50 per share and
they expire on September 30, 1999. The options were granted in exchange for
restructuring the payment terms of the then outstanding balance. The new terms
include the immediate payment of $120,000 plus twenty-four equal payments of
$9,230 including interest at 10%. At September 30, 1996 $9,000 was outstanding.
In June 1996, the maintenance contractor exercised all 40,000 options at the
option price of $.50 per share (see Note 7).
3. Property, Plant and Equipment
Property and equipment (including those arising from capital leases) are
summarized as follows:
September 30,
1996
-------------
Machinery and equipment $792,000
Furniture and fixtures 118,000
Equipment under capitalized leases 48,000
Leasehold improvements 42,000
-------------
1,000,000
Less accumulated depreciation and
amortization 540,000
-------------
$460,000
=============
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Property, Plant and Equipment (continued)
Annual amortization of equipment under capital leases is included with
depreciation and amortization expense.
Depreciation expense was $148,000 and $131,00 for the years ended September 30,
1996 and 1995, respectively.
4. Software Development Costs
Certain software development costs amounting to $183,000 principally incurred in
connection with the development of certain of the Company's products, have been
capitalized in the current and prior years. These costs are being amortized,
under the straight line method, over a five year period which commenced on April
1, 1993 when the related products were ready for general release. Amortization
expense of approximately $37,000 and $35,000 at September 30, 1996 and 1995,
respectively, has been included in cost of sales. Accumulated amortization was
$125,000 at September 30, 1996.
5. Long-Term Debt
In August 1994, the Company paid its then outstanding debt to Panavest
Mercantile Corporation and completed a new credit facility with a New York City
bank for $2,750,000. The credit facility provided 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 Company and all of its
operating subsidiaries, as well as a $500,000 letter of credit provided by the
Company's majority shareholder.
Further, in exchange for options to acquire 500,000 unregistered shares of the
Company'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 $250,000 for fiscal 1995
(with a maximum guarantee of $250,000). Due to the loss in fiscal 1994 in the
amount of $668,000, the guarantor loaned the Company 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 subject to its
subordination. In July 1996, 100,000 of these options were exercised at $.30 per
share (see Note 7).
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt (continued)
The Company and its bank have agreed upon extending the expiration date of the
revolving line of credit to March 31, 1997. The annual facility fee has been
reduced to .5% from 1%, capital expenditures have been limited to $250,000 (up
from $100,000) and there is no income guarantee. 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 Company is also required to maintain various financial
ratios. At September 30, 1996 the Company was not in default of any of its
financial covenants.
The Company made interest payments of $223,000 and $249,000 for the years ended
September 30, 1996 and 1995.
Annual maturities of Notes/Loans Payable are as follows:
Note Payable Other Notes/Loans
Bank Payable
---------------------- ----------------------
1997 $2,024,000 $243,000
1998 --- 23,000
After 1998 --- 149,000
Total $2,024,000 $415,000
====================== ======================
Effective October 1, 1995, the Company adopted SFAS No. 107 which requires
disclosing fair value to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed therein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement. The following table
summarizes financial instruments by individual balance sheet accounts as of
September 30, 1996:
Carrying Amount Fair Value
--------------- ------------
Debt Maturing Within One Year $2,267,000 $2,267,000
Long - Term Debt 172,000 172,000
Totals $2,439,000 $2,439,000
=============== ==============
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt (continued)
For debt classified as current, it was assumed that the carrying amount
approximated fair value for these instruments because of their short maturities.
The fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities. The carrying amount of
long-term debt approximates fair value.
6. Leases
The Company leases certain office and warehouse space under noncancellable
operating leases expiring at various times through 2004. The Company also leases
certain office equipment and vehicles under noncancellable capital and operating
leases expiring in various years through fiscal 2001.
The following is a schedule of future minimum payments, by year and in the
aggregate, under noncancellable capital and operating leases with initial or
remaining terms of one year or more at September 30, 1996:
Capital Operating
Leases Leases
----------- ----------
1997 $13,000 $271,000
1998 13,000 239,000
1999 11,000 216,000
2000 124,000
2001 61,000
2002 and thereafter ---------- 130,000
Total minimum lease payments 37,000 $1,041,000
==========
Less amount representing interest 3,000
Present value of net minimum lease payments ----------
(including current portion of $13,000) $34,000
==========
Rental expense amounted to $234,000 and $205,000 for the years ended September
30,1996 and 1995, respectively.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity
In May 1995, the Company 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.
In September 1995, a director of the Company exercised a subscription of 60,000
shares of common stock at an exercise price of $0.30 per share. The options were
originally issued to Mirtronics at the exercise price of $0.30 per share.
First Corporate Capital and other unrelated parties exercised options during
fiscal 1996. A total of 305,000 options were exercised with gross proceeds of
$174,250.
8. Income Taxes
During the years ended September 30, 1996 and 1995 the Company recorded a
net tax benefit of $148,000 and $160,000, respectively. A reconciliation of
such with the amounts computed by applying the statutory federal income tax
rate is as follows:
Year ended September 30,
1996 1995
---------- -----------
Statutory federal income tax rate 34% 34%
Computed expected tax from income $304,000 $36,000
Increase in taxes resulting from:
State income taxes, net of Federal tax 34,000 0
benefit
Alternative minimum tax 15,000 0
Nondeductible expenses 9,000 10,000
----------- ----------
Actual tax applicable to income 362,000 46,000
Decrease in taxes resulting from:
Reduction in valuation allowance due to effect
of net operating losses expected to be realized 510,000 206,000
----------- ---------
(Benefit) $(148,000) $(160,000)
The Company made no payments of federal income taxes during the years ended
September 30, 1996 and 1995.
The Company provided $18,000 for state and local franchise and capital taxes for
the years ended September 30, 1996 and 1995. These expenses have been included
in selling, general and administrative expenses for each of the years presented.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
The Company has accumulated approximately $2,316,000 of net operating
losses as at September 30, 1996 which may be used to reduce federal taxable
income and income taxes in future years. The utilization of these losses to
reduce future income taxes will depend on the generation of sufficient
federal taxable income prior to the expiration of the net operating loss
carryforwards through fiscal year 2009.
The Company has recorded a deferred tax asset of approximately $1,041,000 at
September 30, 1996 related principally to the aforementioned net operating loss
carryforwards. A valuation allowance of $667,000 has been recorded which has the
effect of reducing the carrying value of the deferred tax asset to $374,000.
This amount will be utilized against future earnings based on management
projections as the Company has experienced an increase in backlog to
$9,7000,000, its highest level ever. Although management is confident that this
utilization will be realized, there does remain some uncertainty due to
unforeseen events. The net change during the year in the total valuation
allowance was $544,000.
The following summarizes the net operating tax loss carryforwards by year of
expiration:
Expiration Date of Tax Loss
Amount Carryforward
$ 1,209,000 September 30, 2006
537,000 September 30, 2007
570,000 September 30, 2009
9. Other Matters
a. Product development costs charged to income approximated $97,000 and
$160,000, for the years ended September 30, 1996 and 1995, respectively.
b. Selling, general and administrative expenses include provisions for doubtful
accounts amounting to $70,000 and $60,000 for the years ended September 30, 1996
and 1995, respectively.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Stock Options
On February 28, 1990, the Company and its shareholders adopted a nonqualified
stock option plan for an aggregate of 175,000 shares. Under this plan, the Board
of Directors may grant options to eligible employees at exercise prices not less
than 100% of the fair market value of the common shares at the time the option
is granted. During fiscal 1994 the Company granted 71,875 options at an exercise
price of $1.00 per share through May 24, 1999 and extended the terms of all
previously outstanding options to that date. During fiscal 1996 the Company
granted 71,250 options at an exercise price of $1.25 per share through March 15,
2001. At September 30, 1996 and 1995, there were options outstanding to purchase
175,000 and 103,750 shares of the Company's common stock at exercise prices of
$1.00 and $1.25 per share.
11. Acquisitions
On April 1, 1994, the Company formed a new subsidiary, Systems Service
Technology Corp., which acquired selected assets and service contracts of a New
York City service organization. The acquisition, which was immaterial, was
accounted for as a purchase, and the purchase price included initial
consideration of $50,000 and additional contingent consideration measured and
payable over three to fifteen years based on a formula as defined in the
agreement. The additional consideration through September 30, 1996 is $151,000.
The seller has the option to require some payments be made in the Company's
common stock rather than cash in year three.
On March 29, 1996, Systems Service Technology Corp. 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.
In June 1993, the Company formed a new subsidiary, Comco Technologies Inc.
("COMCO"). This new entity concentrates on transit communication systems and
began operations in July 1993 after acquiring approximately $50,000 of inventory
from a Company in Chapter 11 and hiring certain of its employees.
In October 1992, the Company acquired the service contracts of another New York
City-based company. In connection therewith, certain sales and service employees
of such company became employees of the Company's new Pyrotech Service Inc.
subsidiary. The purchase price of the service contracts amounted to $191,000 and
was paid in fiscal 1994 through the issuance of 100,000 unregistered shares of
the Company's common stock, and the balance in cash.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Contingencies
In the normal course of its operations, the Company has been named in a legal
action seeking monetary damages. While the outcome of this matter cannot be
estimated with certainty, management does not expect, based upon consultation
with legal counsel, that it will have a material effect on the Company's
business or financial condition.
On December 29, 1994 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. On March 28, 1996 the litigation was
settled with agreements relating to cross-licensing, royalty payments and other
considerations.
13. Other
Approximately 31% of the Company's employees are covered by collective
bargaining agreements. None of these contracts will expire within one year.
For the years 1990 through 1995, the Company, 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 year. The Company 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 in the next fiscal year.
Effective January 1, 1996, the Board of Directors instituted a 401K plan for
nonunion employees. The plan includes a profit sharing provision at a formula
yet to be determined.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Authoritative Pronouncements
The Financial Accounting Standards Board ("FASB") issued the Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", March of
1995. SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No.121 is effective for financial statements
issued for fiscal years beginning after December 15, 1995. The Company expects
to be able to recover the carrying amount of its long-lived assets and currently
maintains a policy of reviewing on an annual basis the recoverability of its
intangibles and goodwill in order to determine if any adjustments to carrying
value need to be made to reflect impairment. As such, the adoption of SFAS 121
is not expected to have a material affect on the Company's financial statements.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation". This statement establishes financial accounting and reporting
standards for stock-based employees compensation plans and is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
The statement defines a fair value based method to account for employee stock
options. The Company currently measures stock-based compensation in accordance
with the standards of APB Opinion No. 25, "Accounting for Stock Issued to
Employees", which prescribes an intrinsic value measurement method. SFAS 123
allows an entity to continue to follow APB Opinion No. 25 when determining
stock-based compensation to be included in the results of operations, while
requiring footnote disclosure of proforma information of the effects of
following the provisions of SFAS 123. The Company expects to continue to measure
compensation using the intrinsic value method and therefore the adoption of SFAS
123 is not expected to have a material effect on its financial statements.
In September 1996 the FASB released SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". The statement
prescribes accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities and is effective for
transfers and servicing financial assets and extinguishments of liabilities
after December 31, 1996. Due to the Company's minimal investment in financial
assets, the adoption of SFAS 125 is not expected to have a material impact on
its financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as at September 30, 1995 and the Consolidated
Statements of Operations at September 30, 1994 and 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 497
<SECURITIES> 0
<RECEIVABLES> 3,385
<ALLOWANCES> 134
<INVENTORY> 2,095
<CURRENT-ASSETS> 6,707
<PP&E> 1,000
<DEPRECIATION> 540
<TOTAL-ASSETS> 7,766
<CURRENT-LIABILITIES> 4,136
<BONDS> 0
0
675
<COMMON> 4
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,766
<SALES> 13,614
<TOTAL-REVENUES> 13,614
<CGS> 8,481
<TOTAL-COSTS> 12,720
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> 894
<INCOME-TAX> (148)
<INCOME-CONTINUING> 1,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,042
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
