<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1997
-------------------------
COMMISSION FILE NUMBER O-17580
-------------------------
FIRETECTOR INC.
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 11-2941299
--------------------------- -----------------------------
(State or jurisdiction of (IRS Employer identification
incorporation or organization) Number)
262 Duffy Avenue, Hicksville, New York 11801
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(516) 433-4700
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of February 3, 1998,
3,523,287 shares of Registrant's Common Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
1
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INDEX
Page
Part I - Financial Information (unaudited)
Item 1. Financial Statements.
Consolidated Balance Sheet as at December 31, 1997 4
Consolidated Statements of Operations for the Three Month 6
Periods Ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Three 7
Month Periods Ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings. 13
Item 2. Changes in Securities. 13
Item 3. Defaults Upon Senior Securities. 13
Item 4. Submission of Matters to a Vote of Security. 13
Holders.
Item 5. Other Information. 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
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Part I - FINANCIAL INFORMATION
Beginning on the following page is the financial information
required to be filed as part of Part I of this Report.
3
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Part I - FINANCIAL INFORMATION
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet
Unaudited
December 31,
1997
----------------
ASSETS
Current assets:
Cash and cash equivalents $ 437,706
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $181,613 3,882,263
Accounts receivable from affiliated companies 521,525
Inventories 1,886,367
Deferred taxes 168,000
Prepaid expenses and other current assets 77,232
-------------
TOTAL CURRENT ASSETS 6,973,093
-------------
Property, Plant and Equipment at cost, less
accumulated depreciation and
amortization of $686,349 430,933
Software Development Costs, net 12,665
Other Assets 248,607
Deferred Taxes 206,000
-------------
Total assets $7,871,298
=============
See accompanying Notes to the Consolidated Financial Statements.
4
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Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
December 31,
1997
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $1,538,505
Other notes payable 213,835
Accounts payable and accrued expenses 1,186,416
Unearned service revenue 362,546
Current portion of capital lease obligations 21,005
------------
TOTAL CURRENT LIABILITIES 3,322,307
Note payable to bank, less current portion 196,431
Other notes payable, less current portion 238,722
Capital lease obligations, less current portion 27,728
Due to affiliated companies 170,218
------------
TOTAL LIABILITIES 3,955,406
------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, 2,000,000
shares authorized - 675,000 shares issued
and outstanding 675,000
Common stock, 25,000,000 shares authorized,
$.001 par value; issued and outstanding
3,523,287 shares 3,523
Capital in excess of par 5,156,672
Deficit (1,919,303)
-----------
TOTAL STOCKHOLDERS' EQUITY 3,915,892
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,871,298
===========
See accompanying Notes to the Consolidated Financial Statements.
5
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Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For The Three Months Ended
December 31,
1997 1996
----------- ----------
Net sales $1,719,812 $3,751,677
Service revenues 1,127,541 1,072,271
----------- ----------
Total revenues 2,847,353 4,823,948
----------- ----------
Cost of sales 1,109,366 2,679,281
Cost of service 669,276 682,870
Selling, general and administrative 961,319 1,057,275
Interest expense 55,239 64,290
Depreciation and amortization expense 52,076 61,858
Other (income) net (10,055) (9,079)
----------- ----------
2,837,221 4,536,495
----------- ----------
Income before provision
for income taxes 10,132 287,453
Provision (credit) for income taxes:
Current 4,000 26,000
Deferred 5,000
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4,000 31,000
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Net income $ 6,132 $ 256,453
========= ==========
Earnings per common share
Basic earnings per share $ nil $ 0.07
Diluted earnings per share $ nil $ 0.04
========= ==========
Weighted average number of common
shares outstanding 3,529,565 3,548,400
Weighted average number of common
and potential dilutive
common shares outstanding 6,674,408 6,958,264
See accompanying Notes to the Consolidated Financial Statements.
6
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Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For The Three Months Ended
December 31,
1997 1996
--------- ---------
OPERATING ACTIVITIES
Net income $ 6,132 $256,453
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 60,885 71,054
Provision for doubtful accounts 18,000 16,500
Changes in operating assets and liabilities:
Accounts receivable (79,101) (1,046,643)
Inventories, prepaid expenses and other
current assets 19,723 242,215
Accounts receivable from affiliated
companies (28,394) (21,842)
Other assets 45,735 (40,339)
Accounts payable and accrued expenses (155,968) 939,781
Unearned service revenue 25,206 (135,679)
Due to affiliated companies 1,751 15,236
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NET CASH (USED IN)PROVIDED BY OPERATING
ACTIVITIES (86,031) 296,736
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INVESTING ACTIVITIES
Purchases of property and equipment (13,552) (52,481)
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (13,552) (52,481)
--------- ---------
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long term debt, notes payable
and capital lease obligations (43,604) (39,740)
Proceeds from revolving line of credit,
notes payable and capital
lease obligations 1,841 3,600
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NET CASH (USED IN)FINANCING ACTIVITIES (41,763) (36,140)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (141,346) 208 115
Cash and cash equivalents at beginning
of period 579,052 497,107
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Cash and cash equivalents at end of period $437,706 $705,222
========= =========
See accompanying Notes to the Consolidated Financial Statements.
7
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FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results for the three months ended December 31, 1997 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 the Registrant Company ("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 credit facility with a New York bank which was recently sold
(the "Credit Facility"). The revolving credit portion of the facility is
$2,300,000 and expires on March 31, 1998 with a loan payoff by June 30, 1998.
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). The Credit Facility has an annual facility fee of .5% and capital
expenditures are limited to $250,000. At December 31, 1997 a total of $1,735,000
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 Inc.
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 December 31, 1997, the Company was not in default of any of its
financial covenants.
8
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FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
4. TRANSACTIONS WITH RELATED PARTIES
At December 31, 1997, the Company was indebted to Mirtronics and its
subsidiaries for materials, loans and miscellaneous advances in the aggregate
amount of $170,218. 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 $142,510 at December 31, 1997. The Company has a receivable
from Mirtronics and its subsidiaries in the amount of $521,526 at December 31,
1997.
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. The Company also 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 may be
converted into 1,350,000 shares of Common Stock.
The Company and Mirtronics are negotiating to restructure the terms of the above
debt and convertible preferred stock with the intent of reducing the potential
dilution from these securities.
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.
Effective January 1, 1997, in accordance with the employment contract of an
officer/director, the registrant repurchased 25,312 shares of common stock at a
price of $12.96 per share by means of a seven year promissory note bearing
interest at a rate of 4% per annum.
5. 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 dilution 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
9
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Company's employee stock options, non-employee stock options, warrants and
convertible preferred stock. The computation for the three months ending
December 31, 1996 has been restated to conform to the requirements of SFAS N0.
128. Shown below is a table that sets forth the respective calculations for
basic and diluted EPS:
For the Three Months Ended
December 31,
Basic EPS Computation 1997 1996
-------- ---------
Net Income available to common shareholders $6,132 $256,453
Weighted average outstanding shares 3,529,565 3,548,400
Basic EPS $.nil $.07
========= ==========
For the Three Months Ended
Diluted EPS Computation December 31,
1997 1996
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Income available to common stockholders
and assumed conversions $6,132 $256,453
Weighted-average shares 3,529,565 3,548,400
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Plus: Incremental shares from assumed
conversions
Non Employee Stock Option 1,560,625 1,777,047
Convertible preferred stock 1,350,000 1,350,000
Convertible debt 234,218 220,000
Employee Stock Options* 35,281
Warrants* 27,536
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Dilutive potential common shares 3,144,843 3,409,864
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Adjusted weighted-average shares 6,674,408 6,958,264
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Diluted EPS $.nil $.04
========= =========
* Warrants and employee stock options convertible into 318,875 shares were
antidilutive in the 1997 period.
10
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)
Liquidity and Capital Resources
The Company has a credit facility with a New York City bank which was recently
sold (the "Credit Facility"). The credit facility provides for a $2,300,000
revolving line of credit through March 31, 1998 and a $315,000 twenty-nine month
term loan (with a monthly amortization of $5,952 and a balloon payment at
September 1, 1999). At December 31, 1997, the Company owed $1,734,940 under the
terms of the credit 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 the Company's majority shareholder.
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 various financial ratios.
At September 30, 1997, and continuing through December 31, 1997, the Company was
not in default of any of its financial covenants.
The credit facility expires on March 31, 1998 with a loan payoff by June 30,
1998. The company is in discussions with several banks for a new credit
facility.
Net cash used by operations for the three months ended December 31, 1997
amounted to $86,031 as compared to cash being provided by operations of $296,736
for the comparable prior year period. The primary reason for the use of cash in
operations was the decrease in income from operations and a reduction of trade
payables. 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 a more 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 December 31, 1997
were $1,719,812 as compared to $3,751,677 for the comparable prior year period.
Product revenues during the 1996 quarter included approximately $800,000 of
billing in relation to one transit project, which involved the sale of
approximately $660,000 of lower margin products purchased from a third party.
Also during the prior year period, the Company's product division benefitted
from significant construction projects in its New York and Dallas market areas.
Service revenues during the current three month period increased to $1,127,541
as compared to $1,072,271. Competition for new product revenues and retention of
existing service contracts remains high in New York which has impacted and will
continue to impact gross profit.
11
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2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)(continued)
Gross profit on product revenues for the three month period ended December 31,
1997 was 36% as compared with 29% for the comparable 1996 period as a result of
an improved mix of product. The lower gross profit percentage on product
revenues for the three month period of 1996 relates primarily to the above noted
transit project that carried a lower than typical margin on products
manufactured by an outside vendor and from lower margins on certain construction
work that was completed by subcontractors for the Company.
Gross profit on service revenues for the three month period ended December 31,
1997 was 41% as compared with 36% for the comparable 1996 period. The
improvement in gross margin in 1997 reflects the benefit of a 5% increase in
service revenue. Gross profit in the prior year period was also impacted by
final payment of royalties due on service contracts that were sold in 1996.
Income from operating activities for the three month period ended December 31,
1997 decreased to $10,132 as compared to income of $287,453 for the comparable
1996 period. This decrease is primarily attributable to lower product revenues
as the prior year period included product sales from a major sports facility in
Texas and commencement of shipments on several delayed projects in New York. In
1996, a transit project involved the sale of approximately $660,000 of lower
margin products manufactured by an outside vendor. The decline in income from
operations was minimized in 1997 by a 5% increase in service revenue, an
improvement in gross margin percentage through product mix, and lower selling,
general and administrative expenses resulting from the Company's cost
containment program.
The backlog of orders at December 31, 1997 amounted to $5,100,000 as compared to
$5,700,000 at September 30, 1997 and $7,700,000 at December 31, 1996. The
decrease in the backlog since September 30, 1997 is primarily the result of the
Company's performance of certain of its large projects in New York. Management
believes its marketing efforts, which includes active bids in excess of $10
million, will result in new orders that will enable the Company to continue to
maintain a comfortable backlog.
12
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Ex-27 Financial data Schedule 15
b. Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended December
31, 1997.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRETECTOR, INC.
(Registrant)
Date: February 12, 1998 /s/DENNIS P. McCONNELL
-----------------------------
Dennis P. McConnell, Secretary
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from this
Consolidated Statement of Financial Condition at December 31, 1997 (Unaudited)
and the Consolidated Statement of Income for the Three Months Ended December
31, 1997 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 437,706
<SECURITIES> 0
<RECEIVABLES> 4,403,788
<ALLOWANCES> 181,613
<INVENTORY> 1,886,367
<CURRENT-ASSETS> 6,973,093
<PP&E> 1,117,282
<DEPRECIATION> 686,349
<TOTAL-ASSETS> 7,871,298
<CURRENT-LIABILITIES> 3,322,307
<BONDS> 0
0
675,000
<COMMON> 3,523
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,871,298
<SALES> 2,847,353
<TOTAL-REVENUES> 2,847,353
<CGS> 1,778,642
<TOTAL-COSTS> 2,781,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,239
<INCOME-PRETAX> 10,132
<INCOME-TAX> 4,000
<INCOME-CONTINUING> 6,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,132
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
