<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
-------------------------
COMMISSION FILE NUMBER O-17580
-------------------------
FIRETECTOR INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2941299
(State or jurisdiction of (IRS Employer identification
incorporation or organization) Number)
262 Duffy Avenue, Hicksville, New York 11801
(Address of principal executive offices Zip Code)
(516) 433-4700
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [ X ]
No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of August 10, 1998,
4,713,287 shares of Registrant's Common Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
Part I - FINANCIAL INFORMATION
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet
Unaudited
June 30,
1998
----------------
ASSETS
Current assets:
Cash $ 346,476
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $195,250 4,400,239
Accounts receivable from affiliated companies 527,064
Inventories 2,012,370
Deferred taxes 168,000
Prepaid expenses and other current assets 178,536
-------------
Total current assets 7,632,685
-------------
Property, Plant and Equipment at cost, less
accumulated depreciation and
amortization of $772,159 369,069
Software Development Costs, net 3,096
Other Assets 240,426
Deferred Taxes 206,000
-------------
Total assets $8,451,303
=============
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
June 30,
1998
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to Mirtronics $ 845,000
Notes payable 215,485
Accounts payable and accrued expenses 1,698,479
Unearned service revenue 325,422
Current portion of capital lease obligations 24,270
---------------
Total current liabilities 3,108,656
Notes payable to bank 1,654,437
Notes payable, less current portion 217,690
Capital lease obligations, less current portion 24,770
--------------
Total liabilities $ 5,005,553
--------------
Stockholders' equity:
Convertible preferred stock, 2,000,000
shares authorized - none issued
and outstanding
Common stock, 25,000,000 shares authorized,
$.001 par value; issued and outstanding
4,713,287 shares 4,713
Capital in excess of par 5,155,482
Deficit (1,714,445)
-----------
Total stockholders' equity 3,445,750
-----------
Total liabilities and stockholders' equity $8,451,303
===========
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For The Three Months Ended
June 30,
1998 1997
--------- ----------
Net sales $2,840,635 $2,155,554
Service revenues 1,027,698 1,106,239
----------- ---------
Total revenues 3,868,333 3,261,793
----------- ---------
Cost of sales 1,911,950 1,306,708
Cost of service 679,968 621,543
Selling, general and administrative 1,044,210 1,072,899
Interest expense 75,050 56,577
Depreciation and amortization expense 51,775 60,820
Other (income) net (10,463) (9,448)
---------- ---------
3,752,490 3,109,099
---------- ---------
Income from continuing operations before
provision for income taxes 115,843 152,694
Provision for income taxes:
Current 11,000 14,000
---------- ---------
Net income $ 104,843 $ 138,694
========== =========
Earnings per common share
Basic earnings per share $ 0.02 $ 0.04
Dliuted earnings per share $ 0.02 $ 0.02
========== =========
Weighted average shares outstanding 4,712,890 3,523,287
Weighted average number of common
and potential dilutive common
shares outstanding 6,251,257 6,714,350
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statement of Operations (Unaudited)
For the Nine Months Ended
June 30,
1998 1997
----------- ----------
Net sales $6,936,817 $8,984,501
Service revenues 3,208,808 3,308,358
----------- ----------
Total revenues 10,145,625 12,292,859
----------- ----------
Cost of sales 4,496,564 6,082,643
Cost of service 2,046,960 2,008,904
Selling, general and administrative 3,057,678 3,205,148
Interest expense 186,514 182,075
Depreciation and amortization expense 156,668 187,935
Other (income) net (30,796) (27,939)
----------- ----------
9,913,588 11,638,766
----------- ----------
Income from continuing operations before
provision for income taxes 232,037 654,093
Provision for income taxes:
Current 21,000 67,000
Deferred 5,000
----------- ----------
21,000 72,000
----------- ----------
Net income $ 211,037 $ 582,093
=========== ===========
Earnings per common share
Basic earnings per share $ 0.05 $ 0.16
Dliuted earnings per share $ 0.03 $ 0.09
========== =========
Weighted average shares outstanding 3,951,687 3,531,825
Weighted average number of common
and potential dilutive common
shares outstanding 6,323,830 6,738,155
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For The Nine Months Ended
June 30,
1998 1997
---------- --------
OPERATING ACTIVITIES
Net income $ 211,037 $ 582,093
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 175,433 187,935
Provision for doubtful accounts 54,000 49,500
Changes in operating assets and liabilities:
Accounts receivable (633,077) (388,142)
Inventories, prepaid expenses and other
current assets (207,584) 281,010
Accounts receivable from affiliated
company (33,933) (43,701)
Other assets 34,747 (44,286)
Accounts payable and accrued expenses 324,387 (83,557)
Unearned service revenue (11,918) (123,524)
Due to affiliated companies 31,708 9,173
---------- ----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (55,200) 426,501
INVESTING ACTIVITIES
Purchases of property, plant and equipment (37,526) (83,963)
---------- ----------
NET CASH (USED IN) INVESTING ACTIVITIES (37,526) (83,963)
FINANCING ACTIVITIES
Borrowings under new revolving
credit agreement 1,716,415
Principal payments on revolving line of
credit, long term debt, notes payable
and capital lease obligations (1,891,702) (401,195)
Proceeds from revolving line of credit,
notes payable and capital
lease obligations 33,905 66,221
Issuance of common stock in connection
with exercise of options 552,000
Repurchase of common stock (552,000)
Other 1,532 198
---------- ----------
NET CASH (USED IN)
FINANCING ACTIVITIES (139,850) (334,776)
---------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (232,576) 7,762
Cash and cash equivalents at beginning
of period 579,052 497,107
---------- ----------
Cash and cash equivalents at end of period $346,476 $504,869
========== ==========
Supplemental Cash Flow information
The Company restructured preferred stock and notes payable to Mirtronics by the
issuance of $845,000 of new notes. (See Note 5 - Transactions With Related
Parties).
See accompanying Notes to the Consolidated Financial Statements.
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results for the nine months ended June 30, 1998 are not necessarily indicative
of the results that may be expected for the fiscal year ending September 30,
1998. For further information refer to the consolidated financial statements and
footnotes thereto included in Firetector Inc.("the Company") and Subsidiary's
annual report on Form 10-KSB for the year ended September 30, 1997.
2. INVENTORY
Inventories are priced at the lower of cost (first-in, first-out) or market and
consist primarily of raw materials.
3. LONG TERM DEBT
The Company has a new revolving credit facility with Citizens Business Credit
Company of Boston, Mass (the "Credit Facility"). The new credit facility
provides for a $3,000,000 revolving line of credit for the three year period
ending June 2001. The Credit Facility provides for interest at prime rate plus
3/4% on outstanding balances and limits annual capital expenditures to $250,000.
At June 30, 1998 $1,654,437 was outstanding under this facility. 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 Inc., the Company's largest stockholder
("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 certain financial
ratios. At June 30, 1998, the Company was not in default of any of its financial
covenants.
4. NOTES PAYABLE TO MIRTRONICS
At June 30, 1998, notes payable to Mirtronics include:
$620,000 Convertible note at 10% interest
225,000 Non-convertible note at 10% interest
-------- -
$845,000
The $620,000 note may be converted into 1,240,000 shares of the Company's common
stock at $.50 per share until December 31, 2002. While these notes are payable
on demand, they are subordinate to and subject to a payment restriction under
the Company's Credit Facility with it's bank. These notes were subordinate to
and repayment was not permitted under the Company's previous loan agreement,
therefore, they were previously classified as a non-current liability.
5. TRANSACTIONS WITH RELATED PARTIES
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 had the right
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
NINE MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
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 were to expire on December 31, 1998. In
addition, the Company had previously entered into a Debt/Equity agreement that
provided for the retirement of debt and the issuance to Mirtronics of 675,000
shares of Preferred Stock, which could also be converted into 1,350,000 shares
of Common Stock. At June 30, 1998, the Company was indebted to Mirtronics for
materials, loans and miscellaneous advances in the aggregate amount of $7,771.
On February 17, 1998, the Company and Mirtronics reached an agreement to
restructure the options, convertible debt and preferred stock held by Mirtronics
so as to reduce the potential dilution of these securities by 1,100,000 shares
of common stock. Under this agreement, Firetector redeemed the $675,000 of
Convertible Preferred Stock and $170,000 of convertible debt for an aggregate
price of $845,000. These securities were convertible into 1,690,000 shares of
common stock. In satisfaction thereof, Firetector issued a $620,000 Convertible
Note with interest at 10% (payable upon demand and convertible into 1,240,000
shares of common stock at a conversion price of $.50 per share until December
31, 2002), and a $225,000 Note (without a convertible feature), with interest at
10%, payable upon demand. The foregoing notes are limited to repayment based
upon covenant requirements and borrowing availability under the terms of the
Credit Facility. Also in connection with this restructuring, Mirtronics
exercised 1,840,000 options for common stock for an aggregate consideration of
$552,000 and Firetector simultaneously repurchased and retired 650,000 of the
newly issued shares for $552,000.
The Company has a receivable from Mirtronics and its subsidiaries in the amount
of $527,064 at June 30, 1998.
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 $146,610 at June 30, 1998, which amount was subsequently repaid in
July 1998.
In consideration of collateral support for the Company's Credit Facility in
1994, the Company granted Genera Capital Corporation, an Ontario Corporation,
("GCC") 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. The President of GCC is also the President of
Mirtronics and a director of both corporations.
Effective January 1, 1997, in accordance with the employment contract of an
officer/director, the registrant repurchased 25,312 shares of common stock at a
price of $12.96 per share by means of a seven year promissary note bearing
interest at a rate of 4% per annum.
6. EARNINGS PER SHARE
The Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per
Shares" which requires companies to report basic and diluted earnings per share
("EPS") computations effective with the Company's quarter ending December 31,
1997. Basic EPS excludes dilation and is based on the weighted-average common
shares outstanding and diluted EPS gives effect to potential dilution of
securities that could share in the earnings of the Company. Diluted EPS reflects
the assumed issuance of shares with respect to the Company's employees stock
options, non-employees stock options, warrants and convertible notes and
preferred stock. The computation for the three and nine months ending June 30,
1997 has been restated to conform
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
NINE MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
to the requirements of SFAS N0. 128. Shown below is a table that sets
forth the respective calculations for basic and diluted EPS:
<TABLE>
<CAPTION>
Three Months ended June 30, Nine Months ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic EPS Computation
Net Income available to common
shareholders $ 104,843 $138,694 $211,037 $582,093
Weighted average outstanding shares 4,712,890 3,523,287 3,951,687 3,531,825
Basic EPS $.02 $.04 $.05 $.16
Diluted EPS Computation
Income available to common
shareholders $104,843 $138,694 $211,037 $582,093
Impact of convertible notes 12,400 3,251 14,467 9,751
Diluted net income $117,243 $138,694 $225,504 $591,844
Weighted-average shares 4,712,890 3,523,287 3,951,687 3,531,825
Plus Incremental shares from
assumed conversions
Non Employee Stock Options 278,367 1,786,301 1,130,094 1,794,545
Convertible preferred stock 1,350,000 1,350,000
Convertible notes 1,240,000 1,240,000
Employee Stock Options* 40,504 1,554 46,750
Warrants* 14,438 495 15,035
Dilutive potential common shares 1,538,367 3,191,243 2,372,143 3,206,330
Adjusted weighted-average shares 6,251,257 6,714,530 6,323,830 6,738,155
Diluted EPS $.02 $.02 $.03 $.09
</TABLE>
*Warrants and employee stock options convertible into 318,875 and 50,000, shares
were antidilutive for the three month periods ended June 30, 1998 and 1997,
respectively These securities, convertible into 111,875 and 50,000 shares, were
antidilutive for the nine month periods ended June 30, 1998 and 1997,
respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)
Liquidity and Capital Resources
In June 1998, the Company signed a new three-year revolving credit facility with
Citizens Business Credit Company of Boston Mass.(the "Credit Facility"). The new
Credit Facility provides for a $3,000,000revolving line of credit for a three
year period through June, 2001. The Credit Facility has an interest rate of
prime plus 3/4% 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 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 various covenants, which among other things, impose
limitations on declaring or paying dividends, acquisitions and capital
expenditures. The Company is also required to maintain certain financial ratios.
At June 30, 1998, the Company was not in default with any of its financial
covenants.
Initial proceeds from the Credit Facility amounting to $1,716,415 were used to
pay off principal and interest due on the Company's previous loan agreement with
another bank.
Net cash used by operations for the nine months ended June 30, 1998 amounted to
$55,200 as compared to cash being provided by operations of $426,501 for the
comparable prior year period. The primary reason for the use of cash in
operations was the decrease in income from operations and from an increase in
trade receivables due to delayed collections on New York City projects. However,
the Company further anticipates meeting its future cash requirements through
continuation of the negotiation of terms with its customers prior to the
beginning of a project, the monitoring of its terms during a project and
completing projects in timely fashion, resulting in faster final payments. It is
the intention of the Company to continue this program throughout fiscal 1998.
Results of Operations
The Company's product revenues during the three months ended June 30, 1998
increased to $2,840,635 as compared to $2,155,554 for the comparable period in
1997. The increase in product revenues in 1998 reflects projects handled as a
general contractor (where certain work amounting to $400,000 was subcontracted
out to electrical contractors). Product revenues during the nine months ended
June 30, 1998 decreased to $6,936,817 as compared to $8,984,501 for the
comparable prior year period of 1997. Product revenues during the 1997 nine
month period included approximately $1,865,000 of billing in relation to one
transit project, which involved the sale of approximately $1,365,000 of lower
margin products purchased from a third party for resale. In addition, during the
1997 nine month period, product sales benefitted from significant construction
projects in both the New York and Dallas market areas.
Service revenues during the three and nine month periods ending June 30, 1998
decreased to $1,027,696 and $3,208,808 as compared to $1,106,239 and $3,308,358
for the respective three and nine month periods of 1997. The decrease in service
revenues reflects lower than normal call-in service during the 1998 quarter and
nine month periods compared to the comparable 1997 periods. Competition for new
product revenues and retention of existing service contracts remains high in New
York.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited) Continued
Gross profit percentage on product revenues for the three and nine month periods
ended June 30, 1998 was 33% and 35%, respectively, as compared with 39% and 32%,
respectively, for the comparable 1997 periods. Gross profit increased to
$929,000 for the three months ended June 30, 1998 compared to $849,000 for the
comparable period in 1997. However, the gross profit percentage decreased due to
projects handled as a general contractor in 1998 that carried nominal gross
margin on subcontract work. The increased gross profit percentage on product
revenues for the nine months ended June 30, 1998 relates primarily to an
improved product mix compared to the 1997 periods, which included the transit
project noted above that carried a lower than typical margin on products
manufactured by an outside vendor.
Gross profit percentage on service revenues for the three and nine month periods
ended June 30, 1998 was 34% and 36%, respectively, as compared with 44%a and
39%,a respectively, for the comparable 1997 periods. The lower gross profit
percentage on service revenues for the three and nine months ended June 30, 1998
is due to a decrease in call-in service that occurred during the three and nine
month periods of 1998 and increased price competition in New York City.
Income from operating activities for the three and nine month periods ended June
30, 1998 was $115,843 and $232,037, respectively, as compared to income from
operations of $152,694 and $654,093 for the comparable three and nine month
periods in 1997. The decrease in operating income during the three months ended
June 30, 1998 was principally due to a decline in gross profit from service as a
result of a decline in call-in service revenue and additional payroll related
expenses. In addition, there was a $17,000 increase in interest expenses during
the 1998 three month period due to the conversion of $675,000 of preferred stock
into notes payable with interest of 10% (see Notes Payable to Mirtronics).
The decrease in operating income during the nine months ended June 30, 1998 was
due to lower product revenues as the prior year nine month period included
product sales from a major sports facility in Texas and commencement of
shipments on several delayed projects in New York. During the nine month period
of 1997, a transit project involved the sale of approximately $1,865,000 of
lower margin products manufactured by an outside vendor. While the decline in
income from operations during the 1998 periods was related to lower product
shipments and reduced call-in service revenues, the decline was minimized by
lower selling, general and administrative expenses related to the Company's
previous cost containment program. During the past nine months, the Company has
intensified its marketing efforts and expanded its product territory. While this
effort has offset savings in selling, general and administrative cost, the
Company has experienced an improvement in new order bookings, as noted below.
The Company had a current income tax provision representing state and local
taxes and the alternative minimum tax for federal income purposes. The lower
provision during the 1998 periods reflects the effect of reduced income from
operations.
The Company's order position at June 30, 1998 amounted to $9,600,000 as compared
to $6,200,000 at March 31, 1998 and $6,300,000 at June 30, 1997. The increased
backlog reflects the Company's receipt of significant new orders from an airport
hotel, several major subway complexes, a major media company, a hospital center,
a museum and a nursing home. Management believes its recent intensified
marketing efforts will enable it to maintain a significant product order
position.
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
All of the information called for by this Item 4 was disclosed in the
Company's Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1998 and is incorporated herein in its entirety by reference.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Ex-27 Financial data Schedule
b. Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended June 30,
1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRETECTOR INC.
(Registrant)
Date: August 10, 1998 DENNIS P. McCONNELL
------------------------------------
DENNIS P. McCONNELL, SECRETARY
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at June 30, 1998 (Unaudited) and
the Consolidated Statement of Income for the Nine Months Ended June 30, 1998
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 346,476
<SECURITIES> 0
<RECEIVABLES> 4,400,239
<ALLOWANCES> 195,250
<INVENTORY> 2,012,370
<CURRENT-ASSETS> 7,632,685
<PP&E> 1,141,255
<DEPRECIATION> 772,159
<TOTAL-ASSETS> 8,451,303
<CURRENT-LIABILITIES> 3,108,656
<BONDS> 0
0
0
<COMMON> 4,713
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,451,303
<SALES> 10,145,625
<TOTAL-REVENUES> 10,145,625
<CGS> 6,543,524
<TOTAL-COSTS> 9,913,588
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,514
<INCOME-PRETAX> 232,037
<INCOME-TAX> 21,000
<INCOME-CONTINUING> 211,037
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211,037
<EPS-PRIMARY> .05
<EPS-DILUTED> .03
</TABLE>
