<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 March 31, 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 May 14, 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
March 31,
1997
----------------
ASSETS
Current assets:
Cash $ 697,631
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $154,059 3,840,860
Accounts receivable from affilitaed companies 445,838
Inventories 2,016,027
Deferred taxes 149,900
Prepaid expenses and other current assets 176,330
-------------
Total current assets 7,326,586
-------------
Property, Plant and Equipment at cost, less
accumulated depreciation and
amortization of $572,873 473,754
Software Development Costs, net 40,253
Other Assets 331,977
Deferred Taxes 224,100
-------------
Total assets $8,396,670
=============
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
March 31,
1997
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable bank $1,988,511
Other notes payable 279,793
Accounts payable and accrued expenses 1,654,356
Unearned service revenue 491,449
Current portion of capital lease obligations 11,101
---------------
Total current liabilities 4,425,210
Other notes payable, less current portion 283,390
Capital lease obligations, less current portion 18,257
Due to affiliated companies 118,674
--------------
Total liabilities 4,845,531
--------------
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 5,156,672
Deficit (2,284,056)
-----------
Total stockholders' equity 3,551,139
-----------
Total liabilities and stockholders' equity $8,396,670
===========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For The Three Months Ended
March 31,
1997 1996
---------- ----------
Net sales $3,077,270 $2,285,009
Service revenues 1,129,848 1,310,269
---------- ----------
Total revenues 4,207,118 3,595,278
---------- ----------
Cost of sales 2,096,654 1,251,504
Cost of service 704,491 715,655
Selling, general and administrative 1,074,974 1,017,770
Interest expense 61,208 72,283
Depreciation and amortization expense 65,257 64,262
Other (income) net (9,412) (6,520)
Statutory insurance refund (97,923)
Gain on sale of servcie contracts (208,571)
---------- ----------
3,993,172 2,808,460
---------- ----------
Income from continuing operations before
provision (credit) for income taxes 213,946 786,818
Provision (credit) for income taxes:
Current 27,000
Deferred (77,000)
---------- ----------
Net income $ 186,946 $ 863,818
========== ==========
Per share data: ---------- ----------
Net income $ 0.03 $ 0.13
========== ==========
Weighted average shares outstanding 6,958,430 6,859,666
(Including 3,435,143 and 3,616,266
in 1997 and 1996, respectively,
issuable upon exercise of options
andconvertible securities at
various exercise prices)
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For the Six Months Ended
March 31,
1997 1996
----------- ----------
Net sales $6,828,947 $4,214,130
Service revenues 2,202,119 2,323,264
----------- ----------
Total revenues 9,031,066 6,537,394
----------- ----------
Cost of sales 4,775,935 2,410,625
Cost of service 1,387,361 1,311,007
Selling, general and administrative 2,132,249 2,020,128
Interest expense 125,498 148,765
Depreciation and amortization expense 127,115 126,056
Other (income) net (18,491) (11,267)
Statutory insurance refund 0 (97,923)
Gain on sale of service contracts 0 (208,571)
----------- ----------
8,529,667 5,698,820
----------- ----------
Income from continuing operations before
provision (credit) for income taxes 501,399 838,574
Provision (credit) for income taxes:
Current 53,000
Deferred 5,000 (95,000)
----------- ----------
58,000 (95,000)
----------- ----------
----------- ----------
Net income $ 443,399 $ 933,574
=========== ==========
Per share data: ------------ ----------
Net income $ 0.06 $ 0.14
============ ==========
Weighted average shares outstanding 6,968,475 6,859,666
(Including 3,432,631 and 3,616,266
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 Six Months Ended
March 31,
1997 1996
----------- ---------
OPERATING ACTIVITIES
Net income $443,399 $933,574
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 128,710 144,462
Provision for doubtful accounts 33,000 40,000
Changes in operating assets and liabilities:
Accounts receivable (622,865) (197,577)
Inventories, prepaid expenses and other
current assets 203,237 (293,825)
Accounts receivable from affiliated
companies (32,603) (54,600)
Other assets (44,553) 32,091
Accounts payable and accrued expenses 369,114 (235,879)
Unearned service revenue (81,977) 4,311
Due to affiliated companies (30,711) 52,874
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 364,751 425,431
INVESTING ACTIVITIES
Purchases of property and equipment (95,474) (110,812)
Software development costs (800)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (95,474) (111,612)
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long term debt, notes payable
and capital lease obligations (75,753) (173,245)
Proceeds from revolving line of credit,
notes payable and capital
lease obligations 334,850 95,223
Repurchase of common stock with
note payable (327,850)
---------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (68,753) (78,022)
---------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 200,524 235,797
Cash and cash equivalents at beginning
of period 497,107
---------- --------
Cash and cash equivalents at end of period $697,631 $235,797
========== =========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 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 six months ended March 31, 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
and footnotes thereto included in the Registrant Company and Subsidiary's annual
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 for $2,500,000
which was revised in May 1997 to $2,615,477. 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 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 March 31, 1997,
the Registrant was not in default of any of its financial covenants.
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
SIX MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
4. TRANSACTIONS WITH RELATED PARTIES
At March 31, 1997, the Registrant was indebted to Mirtronics and its
subsidiaries for materials, loans, and miscellaneous advances in the aggregate
amount of $155,807. 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 $211,553 at March 31, 1997. The Registrant has a receivable
from Mirtronics and its subsidiaries in the amount of $445,838 at March 31,
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 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.
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 had been
overcharged by an employee benefit fund in the amount of approximately $53,000.
Payment of this amount is expected within this fiscal year.
<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 March 31,
1997, the Registrant owed $1,988,511 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 the Registrant's majority shareholder..
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 March 31, 1997,
the Registrant was not in default of any of its financial covenants.
Net cash provided by operations for the six months ended March 31, 1997 amounted
to $364,751 as compared to $425,431 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 $501,399 as compared to $838,574 for the
comparable prior six month period due to $665,000 of special items discussed
below.
In addition, the Registrant increased its revenues by approximately $2.5 million
with only a $331,000 increase in its working capital requirement. 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
The Registrant's product revenues during the three and six months ended March
31, 1997 increased to $3,044,886 and $6,828,947 as compared to $2,285,009 and
$4,214,130, respectively, for the comparable prior year periods. Product
revenues during the 1997 quarter and six month period included approximately
$950,000 and $1,750,000, respectively of billing in relation to one transit
project, which involved the sale of approximately $700,000 and $1,365,000,
respectively of lower margin products purchased from a third party for resale.
In addition, during the 1997 six month period the Registrant's product division
benefited from significant construction projects in its New York and Dallas
market areas.
Service revenues during the same three and six month periods of 1997 decreased
to $1,124,700 and $2,197,119 as compared to $1,310,269 and $2,323,264,
respectively. However, the prior year three and six month periods included
licensing and royalty payments related to initial settlement of litigation and
included service revenue related to the sale of service contracts. Without these
items in the 1996 periods, service revenues would have increased by $105,431 and
$252,855 for the three and six months ending March 31, 1997, respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)
(continued)
Results of Operations (continued)
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 six month periods
ended March 31, 1997 was 31% and 30% respectively, as compared with 45% and 43%
respectively, for the comparable 1996 periods. The decrease in gross profit
percentage on product revenues for the three and six months ended March 31, 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 six month periods
ended March 31, 1997 was 37% and 37%, respectively, as compared with 35% and
38%, respectively, for the comparable 1996 periods. The 1996 percentages are
after adjusting for the settlement of litigation in 1996 (noted above).
Income from operating activities for the three and six month periods ended March
31, 1997 was $208,946 and $496,399, respectively. Income from operations during
the 1996 comparable periods 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 three and
six month periods ending March 31, 1996 were $122,247 and $174,003,
respectively. 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 six months ended March 31, 1997 were also impacted by
approximately $100,000 relating to 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.
The Registrant had a current income tax provision for the three and six 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 March 31, 1997 amounted to $6,400,000 compared to
$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.
The Registrant's Annual Meeting of Stockholders was held on April 30, 1997.
Stockholders considered and voted upon (1) a Board of Directors' proposal to
adopt a Non Qualified Stock Option Plan; (2) the election of six (6) Directors
to Firetector's Board of Directors; and (3) appointment of Moore Stephens, P.C.
as Firetector's Auditors for the fiscal year ending September 30, 1997.
The six nominees for director were unopposed and were, accordingly elected by
the Stockholders. The following table details the votes cast for, against and
abstained from voting on each matter considered by the Stockholders.
MATTER FOR AGAINST ABSTAINED UNVOTED
- --------------------------------------------------------------------------
Richard Axelsen 3,319,486 25,762
Dennis McConnell 3,308,486 36,762
John Poserina 3,319,486 25,762
Henry Schnurbach 3,314,486 30,762
Daniel Tamkin 3,319,486 25,762
Joseph Vitale 3,319,486 25,762
Option Plan 1,711,526 141,711 26,308 1,471,146
Auditors 3,275,713 54,321 15,214
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 March 31,
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: May 15, 1997 DENNIS P. McCONNELL
------------------------------------
DENNIS P. McCONNELL, SECRETARY
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from this
Consolidated Statement of Financial Condition at March 31, 1997 (Unaudited) and
the Consolidated Statement of Income for the Six Months Ended March 31, 1997
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 697,631
<SECURITIES> 0
<RECEIVABLES> 3,840,860
<ALLOWANCES> 154,059
<INVENTORY> 2,016,027
<CURRENT-ASSETS> 7,326,586
<PP&E> 1,046,627
<DEPRECIATION> 572,873
<TOTAL-ASSETS> 8,396,670
<CURRENT-LIABILITIES> 4,425,210
<BONDS> 0
0
675,000
<COMMON> 3,523
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,396,670
<SALES> 9,031,066
<TOTAL-REVENUES> 9,031,066
<CGS> 6,163,296
<TOTAL-COSTS> 8,529,667
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,498
<INCOME-PRETAX> 501,399
<INCOME-TAX> 58,000
<INCOME-CONTINUING> 443,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 443,399
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
