<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 December 31, 1996
-------------------------
COMMISSION FILE NUMBER O-17580
-------------------------
FIRETECTOR INC.
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 11-2941299
--------------------------- -----------------------------
(State or jurisdiction of (IRS Employer identification
incorporation or organization) Number)
262 Duffy Avenue, Hicksville, New York 11801
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(516) 433-4700
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of February 3, 1997,
3,523,088 shares of Registrant's Common Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
INDEX
Page
Part I - Financial Information (unaudited)
Item 1. Financial Statements.
Consolidated Balance Sheet as at December 31, 1996 4
Consolidated Statements of Operations for the Three Month 6
Periods Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Three 7
Month Periods Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings. 13
Item 2. Changes in Securities. 13
Item 3. Defaults Upon Senior Securities. 13
Item 4. Submission of Matters to a Vote of Security. 13
Holders.
Item 5. Other Information. 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
Part I - FINANCIAL INFORMATION
Beginning on the following page is the financial information
required to be filed as part of Part I of this Report.
<PAGE>
Part I - FINANCIAL INFORMATION
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet
Unaudited
December 31,
1996
----------------
ASSETS
Current assets:
Cash $ 705,222
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $150,165 4,281,138
Accounts receivable from affiliated companies 435,077
Inventories 1,981,200
Deferred taxes 140,000
Prepaid expenses and other current assets 182,079
-------------
TOTAL CURRENT ASSETS 7,724,716
-------------
Property, Plant and Equipment at cost, less
accumulated depreciation and
amortization of $528,808 474,827
Software Development Costs, net 49,449
Other Assets 327,945
Deferred Taxes 229,000
-------------
Total assets $8,805,937
=============
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
December 31,
1996
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable bank $2,006,368
Other notes payable 228,054
Accounts payable and accrued expenses 2,225,023
Unearned service revenue 437,747
Current portion of capital lease obligations 11,046
---------------
TOTAL CURRENT LIABILITIES 4,908,238
Other notes payable, less current portion 19,607
Capital lease obligations, less current portion 21,429
Due to affiliated companies 164,621
--------------
TOTAL LIABILITIES 5,113,895
--------------
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
3,548,400 shares 3,548
Capital in excess of par 5,484,497
Deficit (2,471,003)
-----------
TOTAL STOCKHOLDERS' EQUITY 3,692,042
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,805,937
===========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For The Three Months Ended
December 31,
1996 1995
--------- ----------
Net sales $3,751,677 $1,929,121
Service revenues 1,072,271 1,012,995
----------- ----------
Total revenues 4,823,948 2,942,116
----------- ----------
Cost of sales 2,679,281 1,159,121
Cost of service 682,870 595,352
Selling, general and administrative 1,057,275 1,002,358
Depreciation and amortization expense 61,858 61,794
Other (income) net (9,079) (4,747)
---------- ----------
Income before interest and provision
(credit) for income taxes 351,743 128,238
---------- ----------
Interest expense 64,290 76,482
---------- ---------
Income before provision for
income taxes 287,453 51,756
Provision (credit) for income taxes:
Current 26,000
Deferred 5,000 (18,000)
---------- ---------
31,000 (18,000)
---------- ---------
Net income $ 256,453 $ 69,756
========== =========
Per share data:
Net income $ 0.04 $ 0.01
========= =========
Weighted average shares outstanding
(including 2,552,500 issuable upon
exercise of convertible securities
at various exercise prices) 6,961,220 6,763,654
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For The Three Months Ended
December 31,
1996 1995
-----------------------
OPERATING ACTIVITIES
Net income $256,453 $69,756
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 71,054 71,095
Provision for doubtful accounts 16,500
Changes in operating assets and liabilities:
Accounts receivable (1,046,643) 494,571
Inventories, prepaid expenses and other
current assets 242,215 (144,223)
Accounts receivable from affiliated
company (21,842) (25,855)
Other assets (40,339) (35,756)
Accounts payable and accrued expenses 939,781 (329,330)
Unearned service revenue (135,679) 17,922
Due to affiliated companies 15,236 10,508
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 296,736 128,688
INVESTING ACTIVITIES
Purchases of property and equipment (52,481) (67,804)
Software development costs (800)
---------- --------
NET CASH USED IN INVESTING ACTIVITIES (52,481) (68,604)
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long term debt, notes payable
and capital lease obligations (39,740) (120,988)
Proceeds from revolving line of credit,
notes payable and capital
lease obligations 3,600 60,904
---------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (36,140) (60,084)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 208,115 0
Cash and cash equivalents at beginning
of period 497,107 0
---------- --------
Cash and cash equivalents at end of period $705,222 $ 0
========== ========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 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 three months ended December 31, 1996 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.
The credit facility provides for a $500,000 three year term loan (with a seven
year amortization) and a $2,000,000 revolving line of credit through March 31,
1997. The Registrant is negotiating with its bank to extend the maturity date
and modify the terms and conditions of the credit facility. The credit facility
currently provides for interest at prime plus 2% on outstanding balances.
Advances under the credit facility are measured against a borrowing base
calculated on eligible receivables and inventory. The credit facility is secured
by all of the assets of the Registrant and all of its operating subsidiaries, as
well as a $500,000 letter of credit provided by the Registrant's majority
shareholder, Mirtronics Inc. ("Mirtronics").
In exchange for options to acquire 500,000 unregistered shares of the
Registrant's common stock at an exercise price of $.30 per share, an affiliate
of Mirtronics guaranteed minimum increases in retained earnings of $100,000 for
fiscal 1994 (with a maximum guarantee of $100,000) and $250,000 for fiscal 1995
(with a maximum guarantee of $250,000). Due to the loss in fiscal 1994, the
guarantor loaned the Registrant the required $100,000 which is subordinated to
the bank. This loan bears interest at a rate of 5% above the prime rate of The
Royal Bank of Canada and is payable upon demand subject to its subordination. In
July 1996, 100,000 of these options were exercised at $.30 per share.
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 December 31,
1996, the Registrant was not in default of any of its financial covenants.
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
4. TRANSACTIONS WITH RELATED PARTIES
At December 31, 1996, the Registrant was indebted to Mirtronics and its
subsidiaries for materials, loans, and miscellaneous advances in the aggregate
amount of $164,621. 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 $208,153 at December 31, 1996. The Registrant has a
receivable from Mirtronics and its subsidiaries in the amount of $434,077 at
December 31, 1996.
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 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.
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 by means of a seven year promissory note bearing
interest at a rate of 4% per annum.
5. LEGAL SETTLEMENT
On December 29, 1994 the Registrant's subsidiary 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, in
December 1996, the Registrant paid $22,500 as final settlement of royalties due
on service contracts originally acquired and subsequently sold. This payment was
charged to cost of service.
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
6. OTHER (continued)
For the years 1990 through and including 1995, the Registrant, upon review,
discovered it had been overcharged by a statutory employee related insurance
fund in the amount of approximately $256,000. The fund confirmed this amount and
payment was made 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 for $2,500,000.
At December 31, 1996, the Registrant owed $2,006,368 under the terms of the
credit facility. The credit facility provides for a $500,000 three year term
loan (with a seven year amortization) and a $2,000,000 revolving line of credit
through March 31, 1997. The Registrant is negotiating with its bank to extend
the maturity date and modify the terms and conditions of the credit facility.
The credit facility currently provides for interest at prime plus 2% on
outstanding balances. Advances under the credit facility are measured against a
borrowing base calculated on eligible receivables and inventory. The credit
facility is secured by all of the assets of the Registrant and all of its
operating subsidiaries, as well as a $500,000 letter of credit provided by the
Registrant's majority shareholder. An affiliate of Mirtronics had guaranteed
minimum increases in retained earnings of $100,000 for fiscal 1994 (with a
maximum guarantee of $100,000) and, if the credit facility was renewed, $250,000
for fiscal 1995 (with a maximum guarantee of $250,000). Due to the loss in
fiscal 1994, the guarantor loaned the Registrant the required $100,000 which is
subordinated to the bank. This loan bears an interest rate of 5% above the prime
rate of The Royal Bank of Canada and is payable upon demand subject to its
subordination. In July 1996, 100,000 of these options were exercised at $.30 per
share.
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 December 31,
1996, the Registrant was not in default of any of its financial covenants.
Net cash provided by operations for the three months ended December 31, 1996
amounted to $296,736 as compared to $128,688 for the comparable prior year
period. The primary reason for the increase of cash provided from operations was
the increase in income from operations of $287,453 as compared to $51,756 for
the comparable prior year period. In addition, the Registrant increased its
revenues by approximately $1.9 million with only a $47,000 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 months ended December 31,
1996 increased 96% to $3,751,677 as compared to $1,929,121 for the comparable
prior year period. Product revenues during the quarter included approximately
$800,000 of billing in relation to one transit project, which involved the sale
of approximately $660,000 of lower margin products manufactured by an outside
vendor. In addition, the Registrant's product division has benefited from
significant construction projects in its New York and Dallas market areas.
Service revenues during the three month period increased to $1,072,271 as
compared to $1,012,995, not withstanding the sale of selected service contracts
in 1996 as a result of Management's focus on service, marketing and quality and
the settlement of litigation with a competitor in 1996. 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited)
Results of Operations (continued)
Gross profit on product revenues for the three month period ended December 31,
1996 was 29% as compared with 40% for the comparable 1996 period. The decrease
in gross profit on product revenues for the three months ended December 31, 1996
relates primarily to a transit project that carried a lower than typical margin
on products manufactured by an outside vendor.
Gross profit on service revenues for the three month period ended December 31,
1996 was 36% as compared with 41% for the comparable 1996 period. The current
period includes final settlement of royalties due on the service contracts sold
in 1996.
Income from operating activities for the three month period ended December 31,
1996 increased to $287,453 as compared to income of $51,756 for the comparable
1996 period. This increase is primarily attributable to higher product revenues
in New York and Texas. Results were impacted by approximately $100,000 relating
to payment of state unemployment insurance from prior periods, final royalties
due on service contracts sold in 1996 and installation and training costs for
the Registrants' new management information software.
The backlog of orders at December 31, 1996 amount to $7,7000,000 as compared to
$9,700,000 at September 30, 1996 and $8,600,000 at December 31, 1995. 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 shipping on delayed projects in New York. Management believes
its marketing efforts will enable it to maintain a comfortable backlog
notwithstanding 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.
Not Applicable
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Ex-27 Financial data Schedule 15
b. Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended December
31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRETECTOR, INC.
(Registrant)
Date: February 11, 1997 /s/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 December 31, 1996 (Unaudited)
and the Consolidated Statement of Income for the Three Months Ended December 31,
1996 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 705,222
<SECURITIES> 0
<RECEIVABLES> 4,431,303
<ALLOWANCES> 150,165
<INVENTORY> 1,981,200
<CURRENT-ASSETS> 7,724,716
<PP&E> 1,003,635
<DEPRECIATION> 528,808
<TOTAL-ASSETS> 8,805,937
<CURRENT-LIABILITIES> 4,908,238
<BONDS> 0
0
675,000
<COMMON> 3,548
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,805,937
<SALES> 4,823,948
<TOTAL-REVENUES> 4,823,948
<CGS> 3,362,151
<TOTAL-COSTS> 4,472,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,290
<INCOME-PRETAX> 287,453
<INCOME-TAX> 31,000
<INCOME-CONTINUING> 256,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 256,453
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
