<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, 1997
-------------------------
COMMISSION FILE NUMBER O-17580
-------------------------
FIRETECTOR INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2941299
(State or jurisdiction of (IRS Employer identification
incorporation or organization) Number)
262 Duffy Avenue, Hicksville, New York 11801
(Address of principal executive offices Zip Code)
(516) 433-4700
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of August 11, 1997,
3,523,287 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
June 30,
1997
----------------
ASSETS
Current assets:
Cash $ 504,869
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $181,059 3,589,637
Accounts receivable from affiliated companies 456,936
Inventories 1,928,300
Deferred taxes 169,000
Prepaid expenses and other current assets 167,184
-------------
Total current assets 6,815,926
-------------
Property, Plant and Equipment at cost, less
accumulated depreciation and
amortization of $611,237 473,163
Software Development Costs, net 31,057
Other Assets 295,551
Deferred Taxes 200,000
-------------
Total assets $7,815,697
=============
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
June 30,
1997
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable bank $1,538,505
Other notes payable 223,387
Accounts payable and accrued expenses 1,201,685
Unearned service revenue 449,902
Current portion of capital lease obligations 21,391
---------------
Total current liabilities 3,434,870
Notes payable to bank, less current portion 226,196
Other notes payable, less current portion 268,248
Capital lease obligations, less current portion 37,992
Due to affiliated companies 158,558
--------------
Total liabilities 4,125,864
--------------
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
3,523,287 shares 3,523
Capital in excess of par 5,156,673
Deficit (2,145,363)
-----------
Total stockholders' equity 3,689,833
-----------
Total liabilities and stockholders' equity $7,815,697
===========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For The Three Months Ended
June 30,
1997 1996
--------- ----------
Net sales $2,155,554 $2,632,125
Service revenues 1,106,239 1,027,033
----------- ---------
Total revenues 3,261,793 3,659,158
----------- ---------
Cost of sales 1,306,708 1,899,150
Cost of service 621,543 503,694
Selling, general and administrative 1,072,899 1,031,026
Interest expense 56,577 69,659
Depreciation and amortization expense 60,820 60,305
Other (income) net (9,448) (4,810)
Statutory insurance refund (3,444)
Gain on sale of service contracts
Union refund (21,807)
---------- ---------
3,109,099 3,533,773
---------- ---------
Income from continuing operations before
provision (credit) for income taxes 152,694 125,385
Provision (credit) for income taxes:
Current 14,000
Deferred (47,500)
---------- ---------
Net income $ 138,694 $ 172,885
========== =========
Per share data: ---------- ---------
Net income $ 0.02 $ 0.03
========== =========
Weighted average shares outstanding 6,958,430 6,546,209
(Including 3,433,635 and 3,290,004
in 1997 and 1996, respectively,
issuable upon exercise of options
and convertible securities at various
exercise prices)
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statement of Operations (Unaudited)
For the Nine Months Ended
June 30,
1997 1996
----------- ----------
Net sales $8,984,501 $6,846,255
Service revenues 3,308,358 3,350,297
----------- ----------
Total revenues 12,292,859 10,196,552
----------- ----------
Cost of sales 6,082,643 4,309,775
Cost of service 2,008,904 1,814,701
Selling, general and administrative 3,205,148 3,051,154
Interest expense 182,075 218,424
Depreciation and amortization expense 187,935 186,361
Other (income) net (27,939) (16,077)
Statutory insurance refund 0 (101,367)
Gain on sale of service contracts 0 (208,571)
Union refund (21,807)
----------- ----------
11,636,766 9,232,593
----------- ----------
Income from continuing operations before
provision (credit) for income taxes 654,093 963,959
Provision (credit) for income taxes:
Current 67,000
Deferred 5,000 (142,500)
----------- ----------
72,000 (142,500)
----------- ----------
Net income $ 582,093 $1,106,459
=========== ===========
Per share data: ------------ -----------
Net income $ 0.09 $ 0.17
============ ===========
Weighted average shares outstanding 6,965,460 6,546,209
(Including 3,435,143 and 3,290,004
in 1997 and 1996, respectively,
issuable upon exercise of options
and convertible securities at various
exercise prices)
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For The Nine Months Ended
June 30,
1997 1996
---------- --------
OPERATING ACTIVITIES
Net income $ 582,093 $1,106,459
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 187,935 213,963
Provision for doubtful accounts 49,500 55,000
Changes in operating assets and liabilities:
Accounts receivable (388,142) 322,755
Inventories, prepaid expenses and other
current assets 281,010 (458,914)
Accounts receivable from affiliated
company (43,701) (77,557)
Other assets (44,286) (3,636)
Accounts payable and accrued expenses (83,557) (372,178)
Unearned service revenue (123,524) 54,129
Due to affiliated companies 9,173 2,507
---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 426,501 842,528
INVESTING ACTIVITIES
Purchases of property and equipment (83,963) (122,721)
Software development costs (800)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (83,963) (123,521)
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long term debt, notes payable
and capital lease obligations (401,195) (335,389)
Proceeds from revolving line of credit,
notes payable and capital
lease obligations 66,221 111,644
Proceeds from sale of Common Stock 70,000
Other 198
---------- ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (334,776) (153,745)
---------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 7,762 565,262
Cash and cash equivalents at beginning
of period 497,107
---------- ----------
Cash and cash equivalents at end of period $504,869 $565,262
========== ==========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Supplemental Schedule of Non-cash Financing Activities:
Financing Activities:
Repurchase of common stock from an officer/director by the issuance of a
$328,044 seven year promissory note.
See Accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1997
(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, 1997 are not necessarily indicative
of the results that may be expected for the fiscal year ending September 30,
1997. For further information, refer to the consolidated financial statements
report on Form 10-KSB for the year ended September 30, 1996.
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 which was
increased in May 1997 to $2,615,477. The credit facility includes a $315,477
twenty-nine month term loan (with a monthly amortization of $5,952 and a balloon
payment at September 1, 1999) and a $2,300,000 revolving line of credit through
March 31, 1998. At June 30, 1997, a total of $1,764,701 was outstanding under
this facility. The credit facility currently provides for interest at prime plus
1 1/2% (reduced from prime plus 2% in May 1997) 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 $300,000 letter of credit (reduced from $500,000) provided by the
Registrant's majority shareholder, Mirtronics Inc. an Ontario Corporation
("Mirtronics").
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, 1996, and continuing through June 30, 1997,
the Registrant was not in default of any of its financial covenants.
4. TRANSACTIONS WITH RELATED PARTIES
At June 30, 1997, the Registrant was indebted to Mirtronics and its subsidiaries
for materials, loans, and miscellaneous advances in the aggregate amount of
$158,558. 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
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
NINE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
aggregate amount of $144,706 at June 30, 1997. This indebtedness is also
subordinate to debt payable to the Registrant's bank which allowed a $66,847
repayment in June, 1997. The Registrant has a receivable from Mirtronics and its
subsidiaries in the amount of $456,936 at June 30, 1997.
In July 1994, in consideration of Mirtronics extending the term of its letter of
credit in connection with the Company's credit facility 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 had the right to acquire up to an aggregate of
1,840,000 shares of common stock at a price of $.30 per share (subject to a call
option held by the Registrant's Chairman on a portion thereof). The options
expire on December 31, 1998.
Effective January 1, 1997, in accordance with the employment contract of an
officer/director, the Registrant repurchased 25,312 shares of common stock at a
price of $12.96 per share (corresponding to his original split-adjusted purchase
price in 1980) by means of a seven year promissory note bearing interest at a
rate of 4% per annum.
5. LEGAL SETTLEMENT
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.
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. In addition, the
Registrant paid $22,500 in December 1996 as final settlement of royalties due on
service contracts originally acquired and subsequently sold. This payment was
charged to cost of service.
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 $252,000. The fund confirmed this amount and
payment was made in fiscal 1996. The registrant also discovered that it
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
NINE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
had been overcharged by an employee benefit fund in the amount of approximately
$53,000. Payment of this amount is disputed by the fund and the Registrant is
pursuing available remedies.
<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. At June 30,
1997, the Registrant owed $1,764,701 under the terms of the credit facility. In
May, 1997 the bank extended the maturity date and modified the terms and
conditions of the credit facility. The credit facility now provides for a
$315,477 twenty-nine month term loan (with a monthly amortization of $5,952 and
a balloon payment at September 1, 1999) and a $2,300,000 revolving line of
credit through March 31, 1998. The credit facility currently provides for
interest at prime plus 1 1/2 % (reduced from 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 $300,000 letter of credit (reduced from $500,000)
provided by Mirtronics.
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, 1996, and continuing through June 30, 1997,
the Registrant was not in default of any of its financial covenants.
Net cash provided by operations for the nine months ended June 30, 1997 amounted
to $426,501 as compared to $842,528 for the comparable prior year period. The
primary reason for the decrease of cash provided from operations was the
decrease in income from operations of $654,093 as compared to $963,959 for the
comparable 1996 nine month period. The 1996 period includes $665,000 of special
items discussed below in Results of Operations.
In addition, the Registrant increased its revenues by approximately $2.1 million
while only increasing accounts receivable (trade and affiliated) by $382,000 and
decreasing inventory by $167,000. Cash generated from operations of $427,000 was
primarily used to reduce the Registrant's revolving line of credit, notes
payable and capital leases by $401,000. Furthermore, the Registrant continues
its program of negotiation of terms with its customers 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 1997.
Results of Operations
Product revenues for the quarter ended June 30, 1997 decreased to $2,155,554 as
compared to $2,632,125 for the comparable prior year quarter. However, the
quarter ended June 30, 1996, included approximately $500,000 of billing as a
general contractor, essentially as a pass-through, with marginal profit. Without
this item in 1996, product revenues for the three months ended June 30, 1997
would have increased slightly. The Registrant's product revenues during the nine
months ended June 30, 1997 increased to $8,984,501 as compared to $6,846,255 for
the comparable prior year period. Product revenues during the 1997 nine month
period included approximately $1,865,000 of billing in relation to one transit
project, which involved the sale of approximately $1,365,000 of lower margin
products purchased from a third party for resale. In addition, during the 1997
nine month period the Registrant's product division benefitted from significant
construction projects in its New York and Dallas market areas.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)(continued)
Results of Operations (continued)
Service revenues for the quarter ended June 30, 1997 increased to $1,106,239 as
compared to $1,027,033 in the previous year due to additional service revenue
from contracts and repairs. Service revenues for the nine month period ended
June 30, 1997 decreased to $3,308,358 as compared to $3,350,297 for the prior
year nine month period. However, the prior year nine month period included
licensing and royalty payments related to initial settlement of litigation and
included service revenues related to the sale of service contracts. Without
these items in the 1996 nine month period, service revenues would have increased
by approximately $337,000 for the nine months ending June 30, 1997.
Competition for new product revenues and retention of existing service contracts
remains high in New York which has impacted and will continue to impact gross
profit.
Gross profit percentage on product revenues for the three and nine month periods
ended June 30, 1997 was 39% and 32% respectively, as compared with 28% and 37%
respectively, for the comparable 1996 periods. The increase in gross profit
percentage for the quarter ended June 30, 1997 was due to improved gross profit
on various projects. The comparable three month period in 1996 includes a job
taken as the general contractor. General contractor jobs generally carry a
nominal gross profit percentage and this periods margin was reduced to 28%. The
decrease in gross profit percentage on product revenues for the nine months
ended June 30, 1997 relates primarily to the transit project noted above that
carried a lower than typical margin on those products that were manufactured by
an outside vendor.
Gross profit percentage on service revenues for the three and nine month periods
ended June 30, 1997 was 44% and 39%, respectively, as compared with 51% and 39%,
respectively, for the comparable 1996 periods. While service revenue increased
during the three months ended June 30, 1997, there was a decrease in gross
margin percentages due to a change in mix of service revenue requiring a larger
content of materials, from salary increases, and from the addition of service
technicians. The 1996 nine month percentages are after adjusting for the
settlement of litigation in 1996 (noted above under service revenue).
Income from operating activities for the three and nine month periods ended June
30, 1997 was $152,694 and $654,093, respectively, as compared to $125,385 and
$963,959, respectively, for the comparable 1996 periods. Income from operations
increased in the 1997 three month period primarily due to higher gross margin
from products sold in each of Registrant's market areas. Income from operations
during the 1996 comparable nine period included the following special items
aggregating $665,000: licensing and royalty payments from initial settlement of
litigation, revenue from the sale of service contracts, and from a statutory
insurance refund. Excluding these special items, income from operations for the
nine month period ending June 30, 1996 was $298,959. After these adjustments,
income from operations increased in the 1997 periods primarily due to higher
product revenues in New York and Texas. Results for the nine months ended June
30, 1997 were also impacted by approximately $100,000 relating to the following:
payment of state unemployment insurance from prior periods, final royalties due
on the service contracts sold in 1996, and installation and training costs for
the Registrants' new management information system.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)(continued)
Results of Operations (continued)
The Registrant had a current income tax provision for the three and nine month
periods ending March 31, 1997, representing state and local taxes and
alternative minimum tax for federal income purposes. This is in contrast to a
deferred tax benefit recorded for the similar periods in 1996 of the impact of
utilizing net operating loss carryforwards.
The backlog of orders at June 30, 1997 amounted to $6,300,000 compared to
$6,400,000 at March 31, 1997, $7,700,000 at December 31, 1996 and to $9,700,000
at September 30, 1996. The decrease in the backlog since September 30, 1996 is
primarily the result of the Registrant's performance of certain of its large
projects in Texas and commencement of shipments on delayed projects in New York.
Management believes its marketing efforts will enable it to maintain a
comfortable backlog not withstanding increased revenues.
<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.
All of the information called for by this Item 4 was disclosed in the
Company's Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1997 and is incorporated herein in its entirety by reference.
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, 1997.
<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 11, 1997 DENNIS P. McCONNELL
------------------------------------
DENNIS P. McCONNELL, SECRETARY
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Consolidated Statement of Financial Condition at June
30, 1997 (Unaudited) and the Consolidated Statement of Income for
the Nine Months Ended June 30, 1997 (Unaudited) and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 504,869
<SECURITIES> 0
<RECEIVABLES> 3,770,696
<ALLOWANCES> 181,059
<INVENTORY> 1,928,300
<CURRENT-ASSETS> 6,815,926
<PP&E> 1,084,400
<DEPRECIATION> 611,237
<TOTAL-ASSETS> 7,815,697
<CURRENT-LIABILITIES> 3,434,870
<BONDS> 0
0
675,000
<COMMON> 3,523
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,815,697
<SALES> 12,292,859
<TOTAL-REVENUES> 12,292,859
<CGS> 8,091,547
<TOTAL-COSTS> 11,484,630
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182,075
<INCOME-PRETAX> 654,093
<INCOME-TAX> 72,000
<INCOME-CONTINUING> 582,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 582,093
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
