SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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 by reference in Part III of this Form 10-KSB ( )
State issuer's revenues for its most recent fiscal year: $16,029,000
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 18, 1997 was $2,001,976.
As of December 22, 1997, the Registrant had 3,523,827 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
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
<PAGE>
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.
Research and Development
During the fiscal years ended September 30, 1997 and 1996, Firetector spent
approximately $113,000 and $97,000, respectively, for research and development
of Firetector's life safety and communication systems.
Customers and Suppliers
For the fiscal year ended September 30, 1997, one customer, Unity Electric
Inc., accounted for 12% of the Company's revenues. For the fiscal year ended
September 30, 1996 no customers or suppliers accounted for more than 10% of
<PAGE>
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 115 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.
The Company leases a 7,700 square foot office and warehouse facility in
Richardson, Texas, a suburb of Dallas, pursuant to a lease that was extended in
October, 1997 to expire on April 30, 2003 providing for annual rent on a net
basis of $51,700 escalating annually to $61,200 in the final year of the lease.
The Company has a 24 month renewal option on the lease which would allow for
rent at the prevailing market rate and tenant responsibility for any increase in
common area expenses over the 1997 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
<PAGE>
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.
On February 14, 1997 Firetector's Board of Directors approved a resolution
approving the adoption of the Company's 1997 Non-Qualified Stock Option Plan. On
April 30, 1997 at the Annual Meeting of Stockholders, votes representing
1,711,526 shares of the Company's Common Stock were voted in favor of the Plan
and votes representing 141,711 shares were voted against the adoption of the
Plan.
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, 1995 through September
30, 1997 which quotations were obtained from the National Association of
Securities Dealers Inc.
Common Stock
Quarter Ended BID ASK
High Low High Low
---------------------------------------------
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
December 31, 1996 1 3/4 7/8 1 13/16 1 1/16
March 31, 1997 1 15/16 1 2 1/32 1 1/32
June 30, 1997 1 5/8 1 1/8 1 23/32 1 3/8
September 30, 1997 1 9/32 15/16 1 1/2 1
The above quotations represent prices between dealers, do not include
retail markups, markdowns or commissions and may not represent actual
transactions. As of December 18, 1997, there were 417 record holders of
Firetector's Common Stock.
On December 18, 1997 the bid and ask prices for the Common Stock were 15/16
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
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
Firetector has a revolving credit facility with a New York City bank (the
"Credit Facility"). The Credit Facility provides for a $315,000 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.
<PAGE>
At September 30, 1997, Firetector owed $1,753,000 under the terms of the credit
facility. 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 Firetector and all of its operating subsidiaries, as well as a $300,000
letter of credit provided by Firetector's largest stockholder, Mirtronics Inc.,
an Ontario corporation ("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 1998 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 $607,000 of net cash provided from operating activities
during fiscal 1997, primarily the result of net income of $802,000. Net cash
provided was limited by an increase in accounts receivable, due to increased
sales in 1997 and longer payment periods from product sales created by the
weakness in the New York City construction industry. The company was able to
increase product sales by $2.3 million or 25% and at the same time reduced its
inventory level by $216,000 or 10% in 1997. This inventory reduction helped
minimize the cash requirement of the increase in accounts receivable. In order
to monitor accounts receivable, the Company follows a policy of negotiation of
terms prior to the beginning of a project, the monitoring of its terms during a
project and completing projects in a timely fashion. It is the intention of the
Company to continue this program in fiscal 1998.
The ratio of Firetector's current assets to current liabilities increased
to approximately 2.04 to 1 at September 30, 1997 from 1.62 to 1 at September 30,
1996.
The Company further anticipates meeting its future cash requirements
through continuation of a cost reduction program, acceleration of the collection
of receivables, reduction of inventory levels and continuing operating profits.
As of September 30, 1997 and September 30, 1996, Firetector and its
affiliates were indebted to Mirtronics and its subsidiaries and affiliates for
materials, loans and miscellaneous advances in the amount of $168,000 and
$149,000 respectively. The Company is also indebted to First Corporate Equity
Ltd., an affiliate of a director of Mirtronics, in the aggregate amount of
$141,000 and $205,000 at September 30, 1997 and September 30, 1996,
respectively. The Company had a receivable from Mirtronics and its subsidiaries
in the amount of $493,000 and $413,000 at September 30, 1997 and 1996,
respectively.
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
liquidation and/or creditors have seized a project.
RESULTS OF OPERATION
Revenues
During the last two years, Management's focus has been on cost reduction,
<PAGE>
improved efficiencies and system reorganization. Although this approach has
intentionally restrained revenue growth in order to generate positive cash flow,
total revenues increased 18% in fiscal 1997 over fiscal 1996. This increase was
driven by a 25% increase in product revenues from several significant
construction projects in the Company's New York market area. Product revenue in
1997, benefitted from $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 vendor for resale. In contrast, revenues during
fiscal year 1996 included $750,000 of billing as a general contractor
essentially, as a pass-through, with marginal gross profit.
Service revenues increased 2% in 1997 to $4,484,000. 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 revenue in fiscal 1996 included licensing and royalty payments
relating to settlement of litigation and also included service revenues from the
sale of service contracts sold in 1996. Excluding these items in 1996, service
revenues would have increased by 11% in 1997.
Gross Profit
Gross profit from product revenues increased 21% in fiscal 1997 to
$3,908,000 while gross profit on product revenues decreased from 35.1% to 33.8%.
The decrease in gross profit percentage on product revenues in 1997 relates
primarily to competition in the New York City market and the impact of the
transit project noted above that carried a lower than typical margin on those
products that were manufactured by a third party.
Gross profit on service revenues decreased in fiscal 1997 to 38% from 43%
in fiscal 1996 as 1996 service revenues included licensing and royalty payments
received by the Company from settlement of litigation. Absent the impact of such
special revenues, gross profit on service only decreased 2% due to severe
competition in New York City.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses increased by 5% in fiscal 1997
over 1996 to support 18% revenue growth.
Income Before Tax
Operating income increased in 1997 to $902,000 compared to $894,000 in
fiscal 1996. However, fiscal 1996 operating income included the following
special items aggregating $650,000: licensing and royalty payments from initial
settlement of litigation against a competitor, gain from sale of certain
marginal service contracts, and repayment of overcharges by a statutory
insurance fund. Excluding these special items, operating income was only
$244,000 in 1996 compared to $902,000 in fiscal 1997. The improved performance
in 1997 was primarily due to higher product revenues in New York and its related
gross margin. The Company also experienced reduced interest charges (net of
interest income) of approximately $60,000 due to reduced borrowings.
Tax Provisions
The Company's current income tax provision represents state and local
income taxes and the alternative minimum tax for Federal income purposes. In
fiscal 1996, the Company also recognized a $214,000 deferred tax benefit for the
anticipated utilization in future periods of net operating loss carry forwards.
This deferred tax benefit had the effect of increasing 1996 earnings per share
by $.03 per share. Firetector retains approximately $1,350,000 of additional net
operating loss carry forwards.
Backlog
Firetector's backlog, excluding service, decreased to $5,727,000 at
September 30, 1997 from $9,700,000 at September 30, 1996. The backlog at
September 30, 1996 included substantial project orders where subcontractors
provided a portion of the
<PAGE>
installation labor and a large transit order that had $1.3 million of products
purchased from a third party vendor for resale at low gross margin. The
composition of the backlog, at September 30, 1997 does not include a similar
amount of subcontractor labor or third party product for resale.
The backlog decrease also reflects large size orders that have been
completed in the Company's Texas and New York market areas in 1997. The Company
continues to bid on similar projects that might include significant
subcontractor labor, and expects to be active in seeking orders where the
Company would act as a prime contractor.
Plan of Operations
During fiscal 1998, 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. Enhancements to Firetector's
management information systems and methods of approving and monitoring project
costs have improved Management's ability to pinpoint waste and/or third party
(supplier or customer) cost responsibility. Assuming the continuation of the
Credit Facility, Management believes that Firetector will generate sufficient
cash flow from operations to meet its obligations.
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.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements required to be filed hereunder are
indexed at Page 11 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 [Reserved]
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
<PAGE>
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 [Reserved]
10.6 1997 Non-Qualified Stock Option Plan
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)
10.10 Employment Agreement, dated as of January 1, 1997 between
Firetector Inc. and John A. Poserina ....................................
22.1 Subsidiaries of the Registrant (Exhibit 22.1)(1)
27 Financial Data Schedule
- - --------
(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.
(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, hereunto duly authorized.
FIRETECTOR INC.
(Registrant)
By: /s/ Daniel S. Tamkin
Daniel S. Tamkin,
Chief Executive Officer and
Director
Dated: December 29, 1997
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 Chairman, December 29,1997
- - ---------------------- Chief Executive Officer
Daniel S. Tamkin and Director
/s/Joseph Vitale President, Chief Operating
Officer and Director December 29, 1997
- - ----------------------
Joseph Vitale
/s/John A. Poserina Chief Financial Officer December 29, 1997
- - ---------------------- Treasurer and Director
John A. Poserina
/s/Henry Schnurbach Vice President December 29, 1997
- - ---------------------- and Director
Henry Schnurbach
/s/Richard H. Axelsen Director December 29, 1997
- - ----------------------
Richard H. Axelsen
/s/Dennis P. McConnell Secretary December 29, 1997
- - ---------------------- and Director
Dennis P. McConnell
<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, 1997 ...........................
Consolidated Statements of Income
Years Ended September 30, 1997 and 1996 ................................
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 1997 and 1996 ................................
Consolidated Statements of Cash Flows
Years Ended September 30, 1997 and 1996 ................................
Notes to Consolidated Financial Statements ..............................
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Firetector Inc.
We have audited the accompanying consolidated balance sheet of Firetector Inc.
and its subsidiaries as of September 30, 1997 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, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 consolidated financial position of Firetector Inc.
and its subsidiaries as of September 30, 1997 and the consolidated results of
their operations and their cash flows for each of the two fiscal years in the
period ended September 30, 1997, in conformity with generally accepted
accounting principles.
New York, NY
December 8, 1997 MOORE STEPHENS, P.C.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet
September 30,
1997
-------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 579,000
Accounts receivable, principally trade, less
allowance for doubtful accounts of $ 168,000 3,821,000
Accounts receivable from affiliated companies 493,000
Inventories 1,879,000
Deferred taxes 168,000
Prepaid expenses and other current assets 105,000
----------
TOTAL CURRENT ASSETS 7,045,000
Property and equipment at cost, less accumulated
depreciation and amortization of $ 644,000 459,000
Software development costs, net 22,000
Other assets 304,000
Deferred taxes 206,000
----------
Total assets $8,036,000
==========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
September 30,
1997
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $1,539,000
Other notes payable - principally to related parties 217,000
Accounts payable and accrued expenses 1,343,000
Unearned service revenue 337,000
Current portion of capital lease obligations 21,000
-----------
TOTAL CURRENT LIABILITIES 3,457,000
Note payable to bank, less current portion 214,000
Other notes payable, (principally to related parties)
less current portion 254,000
Capital lease obligations, less current portion 33,000
Due to affiliated companies 168,000
-----------
TOTAL LIABILITIES 4,126,000
-----------
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
3,523,287 shares 4,000
Capital in excess of par 5,157,000
Deficit (1,926,000)
-----------
TOTAL STOCKHOLDERS' EQUITY 3,910,000
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,036,000
===========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Income
Year ended September 30,
1997 1996
------------ ----------
Net sales $11,545,000 $9,214,000
Service revenues 4,484,000 4,400,000
----------- ----------
Total revenues 16,029,000 13,614,000
----------- ----------
Cost of sales 7,637,000 5,980,000
Cost of service 2,788,000 2,501,000
Selling, general and administrative 4,264,000 4,075,000
Interest expense 242,000 289,000
Depreciation and amortization expense 246,000 245,000
Other (income)- net (50,000) (38,000)
Statutory insurance refund (101,000)
Gain on sale of service contracts (209,000)
Union refund (22,000)
------------- -----------
Total costs and expenses 15,127,000 12,720,000
------------- -----------
Income from operations before
provision (credit) for income taxes 902,000 894,000
Provision (credit) for taxes:
Current 110,000 66,000
Deferred (10,000) (214,000)
------------ -----------
100,000 (148,000)
------------ -----------
Net income $ 802,000 $1,042,000
============ ===========
Per share data:
Net income $0.12 $0.15
============ ==========
Weighted average shares outstanding 7,027,452 6,860,159
(including 3,497,887 and 3,320,555 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 Stockholders' Equity
Years ended September 30, 1997 and 1996
<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, 1995 $2,219,000 675,000 $675,000 3,243,399 $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 3,548,399 $4,000 $5,484,000 $(2,728,000)
- ---------------------------------------------------------------------------------------------------------------- -
Issuance of shares from
exercise of options 200
Retirement of Shares (327,000) (25,312) (327,000)
Net Income 802,000 802,000
- --------------------------------------------------------------------------------------------------------------- -
Balance at
September 30, 1997 $3,910,000 675,000 $675,000 3,523,287 $4,000 $5,157,000 $(1,926,000)
==================================================================================================================
See accompanying notes to the Consolidated Financial Statements.
</TABLE>
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended September 30,
1997 1996
---------- ----------
OPERATING ACTIVITIES
Net income $ 802,000 $1,042,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 246,000 282,000
Provision for doubtful accounts 72,000 70,000
Changes in operating assets and liabilities:
Accounts receivable (642,000) 474,000
Inventories, prepaid expenses and other
current assets 394,000 (493,000)
Accounts receivable from affiliated companies (80,000) (117,000)
Other assets (25,000) 130,000
Accounts payable and accrued expenses 57,000 (694,000)
Unearned service revenue (236,000) 249,000
Due to affiliated companies 19,000 11,000
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 607,000 954,000
-------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (153,000) (134,000)
Software development costs (1,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (153,000) (135,000)
--------- ---------
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long-term debt, notes payable
and capital lease obligations (450,000) (651,000)
Proceeds from revolving line of
credit, notes payable and capital lease obligations 78,000 274,000
Proceeds from sale of Common Stock 55,000
--------- ---------
NET CASH USED IN
FINANCING ACTIVITIES (372,000) (322,000)
--------- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 82,000 497,000
Cash and cash equivalents at beginning
of the year 497,000
--------- ----------
Cash and cash equivalents at end of the year $579,000 $ 497,000
========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest 225,000 223,000
Income tax 106,000 36,000
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the years ended September 30, 1997 and 1996, the Company incurred capital
lease obligations of $36,000 and $26,000 respectively, in connection with lease
agreements to acquire equipment.
On December 1, 1996, the Company reacquired 25,312 shares of its common stock
from an officer/director of the Company, with the total purchase amount of
$327,000 paid through the issuance of a 4% seven year installment promissory
note payable monthly commencing January 1, 1997.
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997
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, 1997, 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"), a Canadian publicly-held company.
Business
The Company operates in one industry segment: the design, manufacture, marketing
and service of a variety of data communications product and systems with
applications in the fire alarm, life safety, transit, security and
communications 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.
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, 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 $135,000 (net of accumulated amortization of
$38,000) and relates principally to the 1990 acquisition of GenSound (see Note
11). This amount is being
<PAGE>
amortized over forty years under the straight line method. The acquisition cost
of the service contracts ($191,000) is being amortized on the straight line
method over five years which commenced October 1, 1992. The acquisition costs of
selected assets and service contracts ($201,000) are being amortized under the
straight line method over periods of three to fifteen years which commenced
April 1, 1994 (See Note 11).
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
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
asset and 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 shares 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 $12,081. Shares used in the
computation amounted to 7,027,452 and 6,860,159 for the years ended September
30, 1997 and 1996, 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 86% of such
outstanding receivables at September 30, 1997 are due from customers in New
York.
At September 30, 1997, the Company had approximately $325,000 in financial
institutions that is subject to insured amount limitations. The Company does not
require collateral or other securities to support financial instruments subject
to credit risk.
Stock Options and Similar Equity Instruments Policy
On January 1, 196, the Company adopted the disclosure requirements of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
for stock options and similar equity instruments (collectively, "Options")
issued to employees; however, the Company will continue to apply the intrinsic
value based method of accounting for options issued to employees prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issues
to Employees" rather than the fair value based method of accounting prescribed
by SFAS No. 123. SFAS No. 123 also applies to transactions in which an entity
issues its equity instruments to acquire goods or services from non-employees.
Those transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.
<PAGE>
2. Transactions with Related Parties
At September 30, 1997, the Company was indebted to Mirtronics (see Note 1) and
its subsidiaries for materials, loans and miscellaneous advances in the
aggregate amount of $168,000. Of this indebtedness, $115,000 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 $140,700 at September 30, 1997. This
indebtedness is secured by the assets of Casey and GenSound. These loans bear
interest at the Royal Bank's prime lending rate plus 3% to 4% (8.75% at
September 30, 1997). During 1997, interest expense charged to operations was
$17,000 ($33,000 in 1996). The Company has a receivable from Mirtronics and its
subsidiaries in the amount of $493,000 at September 30, 1997.
In consideration of collateral support for the Company's Credit Facility in
1994, the Company granted Gentera Capital Corporation, an Ontario Corporation,
("GCC" formerly known as First Corporate Capital Inc.) options for 500,000
unregistered shares of the Company's common stock at $.30 per share through
December 31, 1999. In July 1996, GCC exercised 100,000 of these options at $.30
per share. An officer of GCC is also a director of Mirtronics (See Note 10).
In consideration of collateral support for the Company's Credit Facility and
various loans over several years, the Company granted to Mirtronics options to
purchase the Company's Common Stock. 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, a portion of which are held for the benefit of the Company's
Chairman. These options expire on December 31, 1998 (See Note 10).
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. Mirtronics currently holds 675,000 shares of Preferred Stock which
may be converted into 1,350,000 shares of Common Stock, a portion of which are
held for the benefit of the Company's Chairman.
At the termination of employment of an officer/director of the Company (other
than for cause), the officer was granted 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. On December 1, 1996 the officer exercised the
option and, commencing January 1, 1997, the Company repurchased 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.
<PAGE>
3. Property, Plant and Equipment
Property and equipment (including those arising from capital leases) are
summarized as follows:
September 30,
1997
-----------
Machinery and equipment $887,000
Furniture and fixtures 126,000
Equipment under capitalized leases 48,000
Leasehold improvements 42,000
-----------
1,103,000
Less accumulated depreciation and
amortization 644,000
----------
$459,000
==========
Annual amortization of equipment under capital leases is included with
depreciation and amortization expense.
Depreciation expense was $154,000 and $148,000 for the years ended September 30,
1997 and 1996, respectively.
4. Software Development Costs
Certain software development costs amounting to $184,000, principally incurred
in connection with the development of certain of the Company's products, have
been capitalized in 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 $37,000 for the years ended September 30, 1997 and
1996, respectively, has been included in cost of sales. Accumulated amortization
was $162,000 at September 30, 1997.
5. Long-Term Debt
The Company has a credit facility with a New York bank (the "Credit Facility").
The revolving credit portion thereof is $2,300,000 and expires on March 31,
1998. The annual facility fee is .5% and capital expenditures are limited to
$250,000. The Credit Facility includes an additional $315,000 twenty-nine month
term loan (with a monthly amortization of $5,952 and a balloon payment at
September 1, 1999). At September 30, 1997 a total of $1,753,000 was outstanding
under this facility. The Credit Facility currently provides for interest at
prime plus 1.5% 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 $300,000 letter of credit
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 Company is also required to maintain various financial
ratios. At September 30, 1997, the Company was not in default of any of its
financial covenants.
<PAGE>
Annual maturities of Notes/Loans Payable are as follows:
Note Payable Other Notes/Loans
Bank Payable
------------ ---------------
1998 $1,539,000 $217,000
1999 214,000 50,000
2000 48,000
2001 48,000
2002 48,000
Thereafter 60,000
----------- --------- -
Total $1,753,000 $471,000
=========== ========
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, 1997:
Capital Operating
Leases Leases
1998 $36,000 $260,000
1999 23,000 268,000
2000 8,000 178,000
2001 119,000
2002 112,000
Thereafter 114,000
----------------------------------
Total minimum lease payments 67,000 $1,051,000
===========
Less amount representing interest 13,000
--------
Present value of net minimum
lease payments (including
current portion of $37,000) $54,000
=========
Rental expense amounted to $237,000 and $234,000 for the years ended September
30,1997 and 1996, respectively.
7. Significant customers
During fiscal 1997, one customer accounted for approximately $1,900,000 (12%) of
revenues.
<PAGE>
8. Income Taxes
During the year ended September 30, 1997 the Company recorded a tax provision of
$100,000, in contrast to the year ended September 30, 1996 when a net tax
benefit of $148,000 was recorded. A reconciliation of such with the amounts
computed by applying the statutory federal income tax rate as follows:
Year ended September 30,
1997 1996
------------------------
Statutory federal income tax rate 34% 34%
Computed expected tax from income $306,000 $304,000
Increase in taxes resulting from:
State and local income taxes, net of
Federal tax benefit 78,000 34,000
Alternative minimum tax 19,000 15,000
Nondeductible expenses 3,000 9,000
-------------------------
Actual tax applicable to income 406,000 362,000
Increase (decrease) in taxes resulting from:
Reduction in valuation allowances to give
effect to use of net operating loss
carryforward (531,000) (510,000)
Reduction of estimated state tax benefit
for future use of net operating losses 225,000
-------------------------
Provision/(Benefit) $100,000 $(148,000)
The Company provided $6,000 and $18,000 for state and local franchise and
capital taxes for the years ended September 30, 1997 and 1996, respectively.
These expenses have been included in selling, general and administrative
expenses for each of the years presented.
The Company has accumulated approximately $1,350,000 of net operating losses as
at September 30, 1997 which may be used to reduce 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 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 $510,000 at
September 30, 1997 related principally to its net operating loss carryforwards.
A valuation allowance of $136,000 has been recorded which has the effect of
reducing the carrying value of the deferred tax asset to $374,000. In 1997 the
Company calculated the valuation allowance based on expectation of realizing 75%
of the deferred tax asset. The expected realization is based on experiencing
three consecutive years of profits. Management anticipates profitable operations
to continue at a level that will result in the utilization of at least 75% of
the deferred tax asset. However, due to the competitive environment in which the
Company operates, which may effect future estimates of profitability, management
believes that an allowance of approximately 25% is prudent at September 30,
1997. The change during the year in the valuation allowance was $531,000, which
was offset by a deferred tax expense of approximately $521,000 resulting in a
net deferred tax benefit of $10,000.
The following summarizes the operating tax loss carryforwards by year of
expiration:
Expiration Date of Tax Loss
Amount Carryforward
------------- ---------------------------
$244,000 September 30, 2006
537,000 September 30, 2007
569,000 September 30, 2009
<PAGE>
9. Other Matters
a. Product development costs charged to income approximated $113,000 and
$97,000, for the years ended September 30, 1997 and 1996, respectively.
b. Selling, general and administrative expenses include provisions for doubtful
accounts amounting to $87,000 and $70,000 for the years ended September 30, 1997
and 1996, respectively.
10. Employee Stock Options, Options, and Warrants
On April 30, 1997, the Company and its shareholders adopted a nonqualified stock
option plan ("1997 Plan"), which expires September 30, 2002, except as to
options then outstanding under the 1997 Plan. Under 1997 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. The number of shares of Common Stock that may be issued shall not
exceed an aggregate of up to 10% of its issued and outstanding shares from time
to time. Options vest at a rate of 20% per year commencing one year after date
of grant. Issuances under the 1997 Plan are to be reduced by options outstanding
under a 1990 nonqualified stock option plan (replaced by the 1997 Plan), which
at September 30, 1997, amounted to 130,125 outstanding options.
If the Company had elected to recognize compensation expense based upon the fair
value at the grant date for awards under these plans consistent with the
methodology prescribed by SFAS 123, the Company's net income and net income per
share would be reduced to the pro forma amounts indicated below:
1997 1996
Net Income (in thousands):
As reported $802,000 $1,042,000
Pro forma 751,000 982,000
Earnings per common share:
As reported $0.12 $0.15
Pro forma 0.11 0.14
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period for purposes of future pro forma disclosures, and additional
options may be granted in future years. The fair value of these options was
estimated at the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions for both 1997 and 1996: dividend
yield of zero; expected volatility of 81% and 89% and expected life of 4 years.
The weighted average risk fee interest rates for 1997 and 1996 were 6.00% and
6.50%, respectively. The weighted average fair value of options granted during
1997 and 1996, for which the exercise price equaled the market price on the
grant dates, were $1.02 and $1.25 per option, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected price volatility. Because the
Company's employees' stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's'
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of employee stock options.
<PAGE>
Transactions involving stock options are summarized as follows:
Weighted Average
Exercise Price of
Stock Options Outstanding Options Outstanding
--------------------------------------------------
Balance October 1, 1995 103,750 $1.00
Granted 71,250 1.25
Exercised/Expired
Balance September 30,1996 175,000 1.10
Granted 88,750 1.02
Exercised/Expired 44,875 1.13
Balance September 30, 199 218,875 1.06
There were 69,975 exercisable options at a weighted average exercise price of
$1.03 at September 30, 1997 and 60,625 exercisable options at a weighted average
exercise price of $1.00 at September 30, 1996.
All of the above options were issued at an exercise price equal to the fair
market price at the time of grant.
The following table summarizes information concerning currently outstanding and
exercisable stock options.
Outstanding at Weighted Average Exercisable at
Exercise Price September 30, 1997 Contractual Life September 30, 1997
$1.00 81,750 1.5 years 60,300
1.25 48,375 3.5 years 9,675
1.125 13,500 4.3 years --
1.00 75,250 5.0 years --
Mirtronics is the largest shareholder of the company. In 1994 and 1995,
Mirtronics provided financial assistance to the Company by way of a Letter of
Credit in support of the Company's Credit Facility, further advances to the
Company, and an exchange of debt for equity. In connection with this financial
assistance, the Company granted Mirtronics options to acquire common stock and
issued Series 1 Preferred Stock in exchange for debt. (See Note 2 for a
discussion of certain options and convertible securities issued to affiliates).
The Company issued options to purchase 500,0000 unregistered shares of common
stock at a $.30 per share go GCC in consideration of providing an income
guaranty to support the Company's Credit Facility. 100,000 of these options were
exercised in July 1996. (also see Note 2 - Transactions with Related Parties).
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 April 1997, the Company entered into an agreement to
exchange 50,000 of these options for 50,000 new options to purchase common stock
at a price of $1.50. Based on calculations done in accordance with the
requirements of SFAS No. 123, stock based compensation expense resulting from
this transaction was immaterial.
Transactions involving non-employee stock options and warrants are summarized as
follows:
Weighted Average
Options and Warrants Exercise Price of
Outstanding Options Outstanding
Balance October 1, 1995 2,517,500 $.33
Granted
Exercised/Expired 140,000 .36
Balance September 30,1996 2,377,500 .33
Granted 50,000 1.50
Exchanged 50,000 1.00
Balance September 30, 1997 2,377,500 $.34
All of these options were exercisable at the end of the periods indicated in the
<PAGE>
above schedule.
The following table summarizes information concerning currently outstanding and
exercisable non-employee stock options and warrants.
Outstanding at Weighted Average Exercisable at
Exercise Price September 30, 1997 Contractual Life September 30, 1997
$.30 2,270,000 1.2 2,270,000
1.00 50,000 3.5 50,000
1.50 50,000 4.5 50,000
1.28 7,500 .8 7,500
11. Sale of Assets
On March 29, 1996, SST sold selected assets to another New York fire alarm
contractor which included the right to certain SST contracts to provide service
or maintenance to selected buildings for $378,000. This resulted in a $209,000
gain on sale of service contracts.
12. Contingencies
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. Management does
not expect, based upon consultation with legal counsel, that any material item
exists that will effect the Company's business or financial condition.
On March 28, 1996, the Company settled a Federal lawsuit brought against a
competitor with agreements relating to cross-licensing, royalty payments and
other considerations. Payments were received in 1996 under this agreement and
were included in service revenue.
13. Other
Approximately 37% 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 in 1996 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
received in 1996. The Company also discovered that it had been overcharged by an
employee benefit fund in the amount of approximately $53,000 and recorded this
recovery in fiscal 1996.
Effective January 1, 1996, the Board of Directors instituted a 401K plan for
nonunion employees. The plan includes a profit sharing provision at the
discretion of the Board of Directors. The amount charged to expense for 1997 was
$22,500.
14. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Values of Financial Instruments", 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 herein 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.
For certain financial instruments, including cash and cash equivalents, trade
receivables and payables, and short term debt, it was assumed that the carrying
amount approximated fair value because of the near term maturities of such
obligations. The fair value of long-term debt was determined based on current
rates at which the Company could borrow funds with similar remaining maturities,
which amount approximates its carrying value.
<PAGE>
15. Authoritative Pronouncements
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.
The FASB has issued SFAS No 128, "Earnings Per Share" and FASB No. 129.
"Disclosure of Information About Capital Structure." Both are effective for
financial statements issued for periods ending after December 15, 1997. SFAS No.
128 simplifies the computation of earnings per share by replacing the
presentation of primary earnings per share with a presentation of basic earnings
per share. The statement requires dual presentation of basic and diluted
earnings per share by entities with complex capital structures. Basic earnings
per share include no dilution and is computed by dividing income available to
common stockholders by the weighted average number of shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of securities
that could share in the earnings of an entity similar to fully diluted earnings
per share.
While the Company has not analyzed SFAS No. 128 sufficiently to determine its
long- term impact on per share reported amount. SFAS No. 128 should not have a
significant effect on historically reported per share profit/loss amounts.
SFAS No. 129 does not change any previous disclosure requirements but, rather,
consolidates existing disclosure requirements for ease of retrieval.
In June 1997 the FASB issued SFAS 130, "Reporting Comprehensive Income" and SFAS
131, "Disclosures About Segments of an Enterprise and Related Information". Both
are effective for financial statements for fiscal years beginning after December
15, 1997. The Company will adopt both statements on October 1, 1998. Adoption is
not expected to have a material impact on financial position and results of
operations.
EXHIBIT 10.6
<PAGE>
FIRETECTOR INC.
1997 NON-QUALIFIED STOCK OPTION PLAN
Purpose. The purpose of the 1997 Stock Option Plan (the
"Plan") of Firetector Inc. (the "Company") is to secure for the Company and its
stockholders the benefits that flow from providing corporate officers, directors
and key employees with the incentive, inherent in the ownership of the Company's
Common Stock par value $.001 per share (the "Common Stock"), to contribute to
the success and growth of the business of the Company and its subsidiaries and
to help the Company and its subsidiaries secure and retain the services of such
employees. For purposes of the Plan, the terms "parent" and "subsidiary" shall
mean "parent corporation" and "subsidiary corporation," respectively, as such
terms are defined in section 425(e) and (f) of the Internal Revenue Code of
1986, as from time to time, amended (the "Code").
2. Stock Option Committee.
2.1 Administration. The Plan shall be administered by the
Board of Directors or by a Stock Option Committee (the "Committee") of not less
than three members of the Board of Directors. The appointment of a Committee,
however, shall not preclude the Board of Directors from granting options and
otherwise exercising its powers with respect to the Plan. As used herein, the
term "Committee" shall be deemed to include the Board of Directors, whether or
not a Committee shall have been appointed.
2.2 Interpreation; Procedures. The Committee is authorized to
interpret the provisions of the Plan and shall adopt such rules and regulations
as it shall deem appropriate concerning the holding of its meetings and the
administration of the Plan. A majority of the whole Committee shall constitute a
quorum, and the act of a majority of the members of the Committeee present at
which a quorum is present shall be the act of Committee. Any member of the
Committee may be removed at any time either with or without cause by resolution
adopted by the Board of Directors of the Company, and any vacancy on the
Committee may at any time be filled by resolution adopted by the Board of
Directors.
3. Shares Subject to Options.
3.1 Number of Shares. Subject to the provisions of paragraph
12 (relating to adjustments upon changes in capitalization), the number of
shares of Common Stock subject at any one time to options granted under the
Plan, plus the number of shares of Common Stock theretofore issued or delivered
pursuant to the exercise of options granted under the Plan, shall not exceed an
aggregate of up to 10% of its issued and outstanding shares from time to time
(such amount to include all shares issuable upon exercise options granted
pursuant to the Company's 1990 Non Qualified Stock Option Plan); provided that
if and to the extent that options granted under the Plan terminate, expire or
are cancelled without having been exercised, new options may be granted under
the Plan with respect to the shares of Common Stock covered by such terminated,
expired or cancelled options.
3.2 Character of Shares. Common Stock delivered upon the
exercise of options granted under the Plan may be authorized and unissued Common
Stock, issued Common Stock held in the Company's treasury, or both.
3.3 Reservation of Shares. There shall be reserved at all
times for sale under the Plan a number of shares of Common Stock (authorized and
unissued Common Stock, issued Common Stock held in the Company's treasury, or
both) equal to the maximum number of shares which may be purchased pursuant to
options granted or that may be granted under the Plan.
4. Grant of Options. The Committee shall determine, within the
limitations of the Plan, the officers, directors and employees of the Company
and its subsidiaries to whom options are to be granted, the number of shares
that may be purchased under each option and the option price. Each option
granted under the Plan shall be evidenced by a written agreement (an "Option
Agreement") between the
<PAGE>
Company and the Optionee (as hereinafter defined) in such form, not inconsistent
with the provisions of the Plan, as the Committee shall provide.
5. Employees Eligible. Options may be granted under the Plan to any
officer, director or key employee or prospective officer, director or key
employee (conditioned upon, and effective not earlier than, his becoming an
officer or employee) of the Company and its subsidiaries. Employees who are also
officers or directors of the Company or its subsidiaries shall not by reason of
such offices be ineligible to receive options under the Plan, but members of the
Committee shall not be eligible to receive options unless granted by the Board
of Directors. An officer, director or employee receiving any option under the
Plan is hereinafter referred to as an "Optionee." Any reference herein to the
employment of an Optionee by the Company shall include his employment by the
Company, its parent or any of its subsidiaries.
6. Price. Subject to paragraph 12, the option price of each Common
Stock purchasable under any option granted under the Plan shall be not less than
100% of the fair market value thereof at the time the option is granted (which
time, in the case of the grant of an option to a prospective officer or key
employee, shall be deemed to be the time of effectiveness of such grant).
7. Expiration. Termination and Amendment of the Plan.
7.1 General. Options may be granted under the Plan at any time
and from time to time on or prior to September 30, 2002, on which date the Plan
will expire except as to options then outstanding under the Plan. Such options
shall remain in effect until they have been exercised, terminated or have
expired. The Plan may be terminated, modified or amended by the Board of
Directors at any time on or prior to December 1, 2002, except with respect to
any options then outstanding under the Plan; provided that any increase in the
maximum number of shares subject to options, as specified in paragraph 3, or any
change in the class of employees eligible for the grant of options hereunder,
shall be subject to approval by the Company's stockholders, unless made pursuant
to the provisions of paragraph 12.
7.2 Modification of Options. No modification, extension,
renewal or other change in any option granted under the Plan shall be made after
the grant of such option, unless the same is consistent with the provisions of
the Plan.
8. Exercisability and Duration of Options.
8.1 Determination of Committee; Acceleration. Each option
granted under the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee may
provide upon the granting thereof. Subsequent to the grant of an option which is
not immediately exercisable in full, the Committee, at any time before complete
termination of such option, may accelerate the time or times at which such
option may be exercised in whole or in part. Any option granted under the Plan
shall be exercisable upon the death of the Optionee or upon the termination of
the Optionee's employment by the Company by reason of his illness or disability
only to the extent such option was exercisable by the Optionee immediately prior
to such event, unless otherwise expressly provided in the option at the time it
is granted.
8.2 Automatic Termination. The unexercised portion of any
option granted under the Plan shall automatically and without notice terminate
and become null and void at the time of the earliest to occur of the following:
(a) The expiration of five years from the date of such option
was granted;
(b) The expiration of ninety days from the termination date of
termination of the Optionee's employment by the Company (other than a
termination described in subparagraph (c), (d) or (e) below); provided that if
the Optionee shall die during such ninety day period, the time of termination of
the unexercised portion of any such option shall be determined under the
provisions of subparagraph (d) below;
<PAGE>
(c) The expiration of one year from the date of termination of
the employment of an Optionee who is permanently and totally disabled (other
than a termination described in subparagraph (e) below);
(d) The expiration of six months following the issuance of
letters testamentary or letters of administration to the executor or
administrator of a deceased Optionee, if the Optionee's death occurs either
during his employment by the Company or during the three-month period following
the date of termination of such employment (other than a termination described
in subparagraph (e) below, but not later than one year after Optionee's death;
(e) The termination of the Optionee's employment by the
Company if such termination constitutes or is attributable to a breach by the
Optionee of an employment agreement with the Company, its parent, if any, or any
of its subsidiaries, if any, or if the Optionee is discharged for cause. The
Committee shall have the right to determine whether the Optionee has been
discharged for cause and the date of such discharge, and such determination of
the Committee shall be final and conclusive; or
(f) The expiration of such period of time of the occurrence of
such event as the Committee in its discretion may provide upon the granting
thereof.
9. Exercise of Options; Certain Legal and Other Restrictions.
9.1 Exercise. Options granted under the Plan shall be
exercised by the Optionee (or by its executors or administrators, as provided in
paragraph 10) as to all or part of the shares covered thereby, by the giving of
written notice of exercise to the Company, specifying the number of shares to be
purchased, accompanied by payment of the full purchase price for the shares
being purchased. Payment of such purchase price shall be made (a) by check
payable to the Company or (b) with the consent of the Committee, by delivery of
Common Stock having a fair market value (determined as of the date such option
is exercised) equal to all or part of the purchase price and if applicable, of a
check payable to the Company for any remaining portion of the purchase price.
Such notice of exercise, accompanied by such payment, shall be delivered to the
Company at its principal business office or such other office as the Committee
may from time to time direct, and shall be in such form, containing such further
provisions consistent with the provisions of the Plan, as the Committee may from
time to time prescribe. The Company shall effect the transfer of the shares so
purchased to the Optionee (or such other person exercising the option pursuant
to paragraph 10) as soon as practicable, and within a reasonable time
thereafter, such transfer shall be evidenced on the books of the Company. No
Optionee or other person exercising an option shall have any of the rights of a
stockholder of the Company with respect to shares subject to an option granted
under the Plan until certificates for such shares shall have been issued
following the exercise of such option. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date of such
issuance. In no event may any option granted hereunder be exercised for a
fraction of a share.
9.2 Restrictions on Delivery of Shares. Each
award granted under the Plan is subject to the conditions that if at any time
the Committee, in its discretion, shall determine that the listing, registration
or qualification of the shares covered by such award upon any securities
exchange or under any state or federal law is necessary or desirable as a
condition of or in connection with the granting of such option or the purchase
or delivery of shares thereunder, the delivery of any or all shares pursuant to
the exercise of the option may be withheld unless and until such listing,
registration or qualification shall have been effected. The Committee may
require, as a condition of exercise of any option, that the Optionee represent,
in writing, that the shares received upon exercised of the option are being
acquired for investment and not with a view to distribution, provided that the
Committee may thereafter waive such representation, subject to such restrictions
as it may determine if, in the opinion of counsel to the Company, the offer of
such shares by the Company pursuant to such option and the resale of such shares
by the Optionee, or either of such acts, is pursuant to an applicable effective
registration statements under the Securities Act of 1933, as amended (the
"Securities Act"), or is exempt from such registration. The Company may endorse
on
<PAGE>
certificates representing shares issued upon the exercise of an option such
legends referring to the foregoing representations or any applicable
restrictions on resale as the Company, in its discretion, shall deem
appropriate.
10. Non-Transferability of Options. No option granted under the Plan or
any right evidenced thereby shall be transferable by the Optionee other than by
will or by the laws of descent and distribution, and an option may be exercised,
during the lifetime of an Optionee, only by him.
In the event of an Optionee's death during his employment by the
Company, its parent or a subsidiary of the Company, or during the three-month
period following the date of termination of such employment, his option shall
thereafter be exercisable, during the period specified in paragraph 8.2 (d), by
his executors or administrators.
11. Right to Terminate Employment. Nothing in the Plan or in any option
granted under the Plan shall confer upon any Optionee the right to continue in
the employment or affect the right of the Company, its parent or any of its
subsidiaries to terminate the Optionee's employment at any time, subject,
however, to the provisions of any agreement of employment between the Company,
its parent or any of its subsidiaries and the Optionee.
12. Adjustment Upon Changes in Capitalization, etc. In the event of any
stock split, stock dividend, reclassification, recapitalization, reorganization,
merger, consolidation, combination, exchange or the like which changes the
character or amount of the Company's outstanding Common Stock while any portion
of any option theretofore granted under the Plan is outstanding but unexercised,
the Committee or the Board of Directors of the Company or any surviving or
acquiring corporation shall make such adjustments in the character and number of
shares subject to such options and in the option price and to take such other
actions (including, without limitation, the assumption of the existing option or
the substitution of a new option) as shall be equitable and appropriate in order
to make each such option, as nearly as may be practicable, equivalent to such
option immediately prior to such change; provided that no such adjustment shall
give the Optionee any additional benefits under his option .
If any such change or transaction shall occur, the number and kind of
shares for which options may thereafter be granted under the Plan shall be
adjusted to give effect thereto.
13. Registration Rights; Form S-8 Registration. The Board of Directors
may grant to any Optionee "Piggy Back Registration Rights" relating to Common
Stock acquired under the Plan. The terms of such rights shall be specified in
the Option Agreement. The Board of Directors may also elect to cause the Company
to register the Common Stock acquired (or which may be acquired) under the Plan
pursuant to a Form S-8 Registration Statement under the Securities Act.
14. Effective Date of Plan. The plan shall be effective
as of the date of its original adoption by the Stockholders of the Company.
EXHIBIT 10.10
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement, is executed and effective for all
purposes as of January 1, 1997, by and between Firetector Inc., a Delaware
corporation having its principal office at 262 Duffy Avenue, Hicksville, New
York 11801 (the "Company") and John A. Poserina, an individual residing at 33
Oak Street, Smithtown, New York 11787 (the "Executive").
In consideration of the terms and conditions hereinafter set
forth, the parties hereto agree as follows:
ss.1. Employment. The Company shall employ Executive to act as
its Vice President and Chief Financial Officer and as a Director for a term (the
"Term") of one (1) year effective January 1, 1997, or such earlier date as the
Company may determine (the "Commencement Date"), as such Term may be extended as
set forth below. The Term shall be automatically extended for successive one
year periods unless either party delivers notice of its intention to terminate
this Agreement within 30 days prior to the termination of the pending Year. This
Section 1 shall be subject to the provisions of Section 5. Each 12 month period
within such term shall be referred to as a "Year."
ss.2. Duties. Executive agrees to use his best efforts to
serve the Company well and faithfully as a Director and as its Vice President
and Chief Financial Officer or such other positions or titles as assigned by the
Board of Directors as are commensurate with Executive's experience and
capabilities. Executive shall devote his entire business efforts to the affairs
of the Company. Executive also agrees to serve without additional compensation
as an officer and director of such subsidiaries and Affiliates, as defined in
Section 7.1.4 hereof, of the Company as the Company may request from time to
time and assume such responsibility and authority for such entities as are
comparable with Executive's responsibilities and authority hereunder and is
reasonable under the circumstances. In his capacity as Vice President and Chief
Financial Officer, Executive will have such powers, authorities and
responsibilities (directly or via direct subordinates) consistent with this
Agreement as determined by the Board of Directors, the Chief Executive Officer
or the President of the Company, including but not limited to the following,
which may be modified by the Board of Directors, the Chief Executive Officer or
the President from time to time:
2.1 Subject to the supervision of the Chief Executive
Officer and/or President, develop and supervise operational business processes
and coordinate and control the day to day business of the Company. It is
contemplated that Executive's day to day activities will focus initially on the
Company's New York operations including, without limitation, Casey Systems Inc.,
FIRE Inc., System Service Technology Corporation, Amco Maintenance Corporation
and Pyrotech Service Inc. Pending further determination by the Board of
Directors or the Chief Executive Officer, the Executive's responsibility for the
Company's Texas operations will be focused on more general financial control,
balance sheet and cash flow management, cost review of major projects, audit
functions, SEC obligations and general business activities (as opposed to
responsibility for specific orders, payments, collection, shipments, weekly
payroll, etc.)
2.2 Reviewing all shipments prior to actual shipping
for credit check. Reporting any problems to the President for determination.
2.3 Reviewing and approving all customer purchase
orders and sales orders for credit purposes and proper margins. Reporting any
deviation from Company policy to the President for determination. Reporting any
credit extended to stale accounts to the Board of Directors in periodic reports.
2.4 Reviewing and approving all purchase orders and
reporting any deviation from Company Policy to the President.
2.5 Collection of accounts receivable and
reporting monthly status to Board of Directors and associated companies.
Monitoring inventory levels and reporting trends to President and Board of
Directors and associated companies.
<PAGE>
2.6 Reviewing and approving all checks for signature.
Signing all checks and processing same to the President for signature.
2.7 Reviewing all salary increases with associated
department heads for compliance with the Budget. Reporting any deviation from
Company policy to the President and the Board of Directors. Submitting
recommendations for any proposed change affecting the Budget.
2.8 Responsible for the integrity, consistency
and operation of all computer systems.
2.9 Carrying out the administrative duties normally
associated with the Accounting Department plus the general administrative duties
associated with the overall Company i.e. 401-K, payroll, insurance plans
(employee and corporate), union contributions, etc. Recommending modifications
to Company plans and methods.
2.10Reviewing and approving all capital expenditures.
Reporting any proposed deviation from the Budget to the President for
determination.
2.11 Preparation and supervision of all required
filings with the Securities and Exchange Commission, Internal Revenue Service
and other government agencies. Report any irregularities to the President.
2.12 Responsible for all financial and
administrative reporting required by Board of Directors, President or Chief
Executive Officer. Prior to distribution of any reports, review same with the
President for comment. Specifically, provide monthly financial statements with
analysis and explanation of deviation of all line items.
2.13 Assisting President (and the Presidents of
General Sound and Pyrotech) in the preparation of annual budgets and rolling
profit and loss and cash flow forecasts.
2.14 Carrying out any directive that may be required
by the President or the Board of Directors not inconsistent with this Agreement
or applicable law.
2.15 Cost Review. Ensure review and analysis of
costs (labor, material, etc.) on projects and service contracts as well as all
manufactured items.
2.16 Inventory. Supervision and control of all
inventory including all procurement and shipments as well as direction of
appropriate inventory levels.
2.17 Banking. Primary responsibility for
negotiation and compliance with all banking and similar arrangements.
2.18 Personnel. Supervise the performance and
function of all accounting personnel and other employees and designated by the
President or CEO.
2.19 Suppliers/Contractors. Supervise relationships
and agreements with all suppliers, subcontractors, etc.
ss.3. Compensation. As compensation for all services to
be rendered by Executive hereunder, the Company agrees to pay to Executive a
"Base Salary" at the rate of $100,000 per Year. The following items will be
provided in addition to the Base Salary:
3.1 Automobile Expenses. Reimbursement, up to a
maximum of $350 per month of Executive's automobile expenses, of whatever kind
or nature;
3.2 Payment. Executive's Base Salary shall be
payable in bi- weekly installments or in such other installments as the Company
institutes from time to time. The Base Salary shall be calculated at the
commencement of each Year
<PAGE>
for purposes of determining Executive's monthly or other periodic rate of pay.
3.3 Salary revision. During the term of this
Agreement, the provisions of Section 3 (including the amount of and procedures
relating to Base Salary) shall remain in effect from Year to Year unmodified,
unless modified pursuant to an amendment to this Agreement executed by Executive
and the Company. The Company agrees that during the Term of this Agreement, the
Board of Directors will review the Base Salary annually to determine if an
adjustment is warranted based on the Company's financial condition and
performance and Executive's performance and contribution.
3.4 Stock Options. Promptly after execution of this
Agreement, the Company shall grant to Executive, pursuant to the terms and
conditions of the Company's Non-Qualified Stock Option Plan as may be in effect
from time to time, options to purchase 15,000 shares of the Company's common
stock, $.001 par value per share.
3.5 Expenses. The Company shall reimburse all of
Executive's reasonable business expenses in accordance with the Company's
policies as in effect from time to time, including without limitation, the costs
of CPA licensing and continuing educational credits.
ss.4. Employee Benefits. During the term of this Agreement,
and subject to his eligibility, Executive shall be entitled to participate in
any employee benefit programs made generally applicable to all senior executives
of the Company, now or hereafter in effect, on the same basis, and under the
same terms and conditions as the Company's other senior executives. The
Company's employee benefit programs for senior executives shall include, but not
be limited to, long term disability insurance, family health insurance, life
insurance, paid vacations and holidays. Such benefits shall include coverage
disability insurance sufficient to provide Executive $5,000 per month of
disability coverage (subject to the standard terms and conditions), provided,
however, that the Company shall only be obligated to pay a maximum of $3,500 in
annual premiums for such disability insurance.
ss.5. Termination of Employment.
5.1 For Cause. The Board of Directors of the
Company may terminate Executive's employment hereunder and remove Executive from
his position with the Company at any time for cause. The term "Cause" as used in
this Agreement shall be deemed to refer to and include only:
5.1.1 The willful and continued failure by
Executive to substantially perform his duties pursuant to the terms of this
Agreement without good cause, after a written demand for substantial performance
is delivered to Executive by the Board of Directors, which notice specifically
identifies the manner in which Executive has not substantially performed his
duties (other than as a result of his death or incapacity, as defined in Section
5.3 below); or
5.1.2 The willful engaging by Executive in
misconduct or inaction materially injurious to the Company. For purposes of this
Section an act or failure to act shall not be considered "willful", unless done
or omitted in bad faith without reasonable belief on Executive's part that his
action or omission was in the best interest of the Company.
For purposes of Section 5.1 of this Agreement,
termination for Cause will not be deemed to have occurred unless there shall
have been duly adopted by the Board of Directors of the Company at a meeting
called and held for that purpose, a resolution finding that in the good faith
opinion of the Board of Directors, Executive was guilty of conduct set forth in
those Sections.
5.2 Without Cause. The Board of Directors of
the Company may terminate Executive's employment hereunder and remove Executive
from his position with the Company without cause by written notice to Executive
(the "Termination Notice"), in which case the provisions of Section 5.4 shall
apply.
5.3 Disability or Death. If, in the judgment
of the Company's
<PAGE>
Board of Directors, Executive fails to render services of the character
contemplated hereby because of illness or other incapacity for a period of six
(6) consecutive months, or for shorter periods aggregating more than six (6)
months in any consecutive twelve (12) months, the Board of Directors may
determine that Executive had become disabled and may elect to terminate his
employment hereunder, effective as of the date of such determination. In the
event of Executive's death during the term hereof, this Agreement shall
terminate forthwith.
5.4 Severance. If Executive's employment
hereunder is terminated under Section 5.2, the Company shall pay Executive as
severance pay, subject to appropriate deductions, one-twelfth (1/12) of his
annual Base Salary for each full month occurring after his employment
termination (hereinafter "Monthly Severance Payment") during the period (the
"Severance Period") ending on the earlier of (I) the date Executive obtains new
employment, either directly or indirectly, at an annual compensation in whatever
form of not less than the annual Base Salary then in effect or (ii) three (3)
months from the date of the Termination Notice; provided, however, that should
Executive obtain new employment, directly or indirectly (through a corporation
or other entity of which Executive or any family member is an employee,
shareholder, etc.), at an annual compensation less than the Base Salary provided
hereunder, each Monthly Severance Payment after such new employment commences
shall be reduced by one-twelfth (1/12) of Executive's annual salary under such
new employment; and provided further, that Executive shall make available to the
Company, any and all documents pertaining to Executive's annual salary under
such new employment, including, without limitation, pay stubs, W-2's and the
appropriate portions of any income tax returns, that Company may reasonably
request in order to make such adjustments. On the first anniversary of the
Commencement Date, the Severance Period shall be modified to be the earlier of
(I) the date Executive obtains new employment, either directly or indirectly, at
an annual compensation in whatever form of not less than the annual Base Salary
then in effect consistent with the foregoing or (ii) six (6) months from the
date of the Termination Notice. In the event that Executive's employment shall
be terminated pursuant to Sections 5.2 or 5.6 in connection with or resulting
from a sale of all or substantially all of the Company's assets or equity, then
the Severance Period shall be 12 months without regard to any other employment
or compensation which Executive might secure from a third party.
5.5 Voluntary Termination. If Executive
voluntarily terminates his employment hereunder other than as provided in
Section 5.6, he shall (i) give three (3) months written notice and (ii) be paid
Base Salary through the date of his termination and shall receive other
compensation and benefits, if any, as provided under the Company's applicable
plans and programs.
5.6 Certain Changes Affecting Executive's
Employment. "Certain changes affecting Executive's employment" shall mean any
material diminution in benefits or employment conditions as a result of which
Executive terminates his employment hereunder, including any of the following
(in which case Sections 5.2 and 5.4 shall apply):
5.6.1 the Company's failure to pay to
Executive, without his consent, any portion of his Base Salary or other amounts
due to Executive under Section 4 within ten (10) days of the date such payment
is due;
5.6.2 the Company's failure to continue in
effect or continue Executive's participation in any compensation plan which is
material to his total compensation or its failure to continue to provide him
with benefits substantially similar to those provided to all senior executives;
5.6.3 the shifting of Executive's principal
office to a location that would require Executive to relocate his residence; or
5.6.4 a material breach by the Company of
its obligations under this Agreement.
ss.6. Assignment; Survival. Except as provided below,
neither party shall have the right to assign this Agreement or any rights or
obligations hereunder without the consent of the other party; provided, however,
that this Agreement shall
<PAGE>
inure to the benefit of and shall be binding upon the successors and assigns of
the Company, and their respective successors and assigns, upon liquidation,
dissolution or winding up of the Company, or upon any sale of all or
substantially all of the assets of the Company, or upon any merger or
consolidation of the Company, as though successors and assigns of the Company
and their respective successors and assigns were the Company. The respective
rights and obligations of the parties hereunder will survive any termination of
this Agreement to the extent necessary to the intended preservation of such
rights and obligations. Executive's executor or successors by will or descent
shall have the right to enforce any of Executive's rights under the Agreement
which survive termination.
ss.7. Definitions. For purposes of this Agreement, the
terms set forth below shall have the following meanings:
7.1.1 Products. Finished and other
products being, or being contemplated to be, manufactured, assembled, processed,
distributed or marketed, in whole or in part, by the Company or any Affiliate.
7.1.2 Confidential Information. That
secret proprietary information of the Company or any Affiliate of whatever kind
or nature disclosed to Executive or known by Executive (whether or not
discovered or developed by Executive) as a consequence of or through his
employment with the Company. Such proprietary information shall include
information relating to the Products, processing, manufacturing, assembly,
quality control, know-how, research and development, sources of supplies and
materials, operating and other cost data, distribution arrangements and Product
proposals and marketing, any of which information is not generally known in the
industry or in related industries in which the Company or any Affiliate engages
in business (including industries supplying to or purchasing from the Company of
any Affiliate) in the United States and Canada and shall specifically include
all information contained in manuals, memoranda, formulae, plans, drawings and
designs, specifications, equipment and machinery configurations, and records of
the Company and any Affiliate legend or otherwise identified by the Company or
any Affiliate as Confidential Information.
7.1.3 Inventions. Those discoveries,
developments, concepts and ideas whether or not patentable, relating to the
Products and to the present and prospective activities of the Company or any
Affiliate (which activities are known to Executive by reason of his employment
with the Company).
7.1.4 Affiliate. An entity controlling,
controlled by or under common control, or in joint venture with the Company.
7.2 Inventions. All Inventions which are at any
time developed by Executive acting alone or in conjunction with others, during
the period commencing with his employment by the Company, until the termination
of this Agreement (or, if based on or related to Executive's activities with the
Company or on behalf of any Affiliate or any Confidential Information or
Invention(s) made by Executive within three years after the termination of
Executive's employment) shall be the property of the Company, free of any
reserved or other rights of any kind on Executive's part in respect thereof.
Executive agrees promptly to make full disclosure of any such Inventions to the
Company, and at its cost and expense to execute formal applications for patents
and also to do all other acts and things (including, among others, the execution
and delivery of instruments of further assurance or confirmation) deemed by the
Company to be necessary or desirable at any time or times in order to effect the
full assignment to the Company of his rights and title to such Inventions and
otherwise to carry out the purposes of this section 7.
7.3 Non-Disclosure. Except as required by his
duties hereunder, Executive agrees that he will never, during or after his
employment with the Company, directly or indirectly, use, publish, disseminate
or otherwise disclose any Confidential Information or Inventions without the
prior written consent of the Company.
7.4 Return of Proprietary Materials. Upon
termination of his employment with the Company, all equipment, models,
prototypes, designs, plans,
<PAGE>
drawings, documents, procedural manuals, specifications, guides and similar
materials, records, notebooks and similar repositories of or containing
Confidential Information or Inventions, including all whether prepared by
Executive or others, will be left with or promptly returned by Executive to the
Company.
7.5 Non-Competition. For a period of two years after
termination of this Agreement, Executive will not compete with the Company (i.e.
fire alarm, life safety, security, communication and energy management or
similar systems or products) directly or through any association, affiliation or
employment on any building or project installed or maintained by the Company.
7.6 Survival of Obligations. Executive's
obligations under this Section 7 shall survive termination of this Agreement.
ss.8. Severability. The invalidity or unenforceability of any
term or provision of this Agreement shall not affect the validity or
enforceability of the remaining terms or provisions thereof, which shall remain
in force and effect, and, should any tribunal having jurisdiction determine that
any such term or provision is unenforceable, by reason of its overbreadth,
whether as to time, geographical scope or otherwise, then such term or provision
shall be deemed to be amended to reduce its scope by the degree of such
overbreadth.
ss.9. Notices. All notices required or permitted hereunder
shall be given or made in writing and shall be sufficiently given ten (10) days
after sending by registered mail as follows, or to such other address as either
party shall designate by notice so given to the other:
If to the Company, at the address set forth on page 1
hereof;
with a copy to:
Dolgenos Newman & Cronin LLP
96 Spring Street
New York, New York 10012
Attention: Dennis McConnell, Esq.
If to Executive, at the address set forth on page 1 hereof.
ss.9. Governing Law. This Agreement shall b
interpreted and construed under the laws of the State of New York applicable to
contracts executed and to be performed wholly within that state.
IN WITNESS WHEREOF, the parties have executed this agreement
as of the date first above written.
Firetector Inc.
By:_______________________________
Name: Joseph Vitale
Title: President
----------------------------------
John A. Poserina
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as at September 30, 1997 and the Consolidated
Statements of Operations at September 30, 1996 and 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 579
<SECURITIES> 0
<RECEIVABLES> 3,821
<ALLOWANCES> 168
<INVENTORY> 1,879
<CURRENT-ASSETS> 7,045
<PP&E> 1,103
<DEPRECIATION> 644
<TOTAL-ASSETS> 8,036
<CURRENT-LIABILITIES> 3,457
<BONDS> 0
0
675
<COMMON> 4
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,036
<SALES> 16,029
<TOTAL-REVENUES> 16,029
<CGS> 10,425
<TOTAL-COSTS> 15,127
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242
<INCOME-PRETAX> 902
<INCOME-TAX> 100
<INCOME-CONTINUING> 802
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 802
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
