ANNUAL
REPORT
1998
FIRETECTOR INC.
FIRETECTOR INC.
FIRETECTOR INC.
FIRETECTOR INC.
FIRETECTOR INC.
FIRETECTOR INC.
FIRETECTOR INC.
<PAGE>
Dear Stockholders:
We are pleased to enclose the Annual Report of Firetector Inc. for the Fiscal
Year Ended September 30, 1998. As we have stated in our various quarterly
reports and press releases during the year, 1998 was dedicated to the resumption
of aggressive marketing after several years of restructuring where we focused on
cost containment, process, system re-engineering and upgrading of internal/field
support. A number of years ago your Board decided that we could only ready the
company for 2000 and beyond by building a proper foundation, which could mean a
temporary lull in selling and revenues. Thus, as we entered 1998, our order
position was reduced and our sales and marketing staff was leaner than we would
have wanted from the perspective of 1998.
As we began the year, we commenced a program of hiring additional sales and
marketing personnel, launching new products and marketing to a wider geographic
area. During the course of the year we developed and accelerated a momentum of
marketing initiatives and achieved sales success across all of our product lines
in both our New York and Dallas regions. At year-end (September 30, 1998) we had
increased our order position to $9.6 million from $5.7 million at the beginning
of the year and had booked numerous exciting projects including:
* Major New York City auction house
* Major New York City museum
* Hotel at John F. Kennedy International Airport
* Several New York City and Long Island medical centers
* Multi-building project in New York City for major Television/Entertainment
concern
* Major upgrade of professional sports facility in the New York area.
* On-board communication systems for trains for transit agencies/rail system
in St. Louis, San Diego and Tunisia
* Numerous educational facilities in the Dallas area
* Numerous New York City office buildings
During 1998 we also realized other milestones including:
* A new $3,000,000 Revolving Credit Facility witha new bank, with whom
we feel we have also secured a partner for future growth
* Completed development of our newest generation of transit
communication systems which made 1998 our most successful year of
transit marketing since we launched this
<PAGE>
venture in 1994
* Maintained stockholders' equity of approximately $3.5 million or more
than $2.00 per outstanding share
* Completed restructuring of our debt and preferred stock obligations
to our largest shareholder which resulted in reduced interest costs and
a significant reduction in potential further dilution from the exercise
of options/warrants.
* Launched a distinct marketing effort of sophisticated security
systems for high-end commercial projects.
* Commenced marketing life safety and sound systems on Long Island.
While our main offices are located on Long Island, we have never
focused on this high growth area. Our expanded product line gives us
more tools with which to service this market which does not feature the
sort of high rise office towers typical of our historical product
focus.
* Completed integration of all of our prior acquisitions into a single
New York operating unit.
* Completed our share recapitalization and maintained our NASDAQ listing.
We completed our first quarter significantly ahead of last year's revenues and
earnings. We are experiencing increased shipments as we continue into the second
quarter and remain excited that the marriage of our 1998 marketing program and
previous years' restructuring will result in a successful 1999.
We remind all of our current and potential stockholders that no company,
particularly one involved in the construction arena, can be judged based on a
single quarter. We will continue to focus on our full year and longer term
strategy to build stockholder value. To that end, we felt that a stock buyback,
which might have temporarily aided the stock price at the expense of our cash
resources was not the best course for our stockholders. We also remain of the
view that our communications to stockholders should be based on the availability
of substantive information.
We invite all of our stockholders to attend our Annual Meeting of Stockholders
at 11:00 a.m. on April 20, 1998 at 96 Spring Street, 8th Floor, NYC, NY.
On behalf of the Board, we thank you for your continued support.
Daniel S. Tamkin, Chairman and Chief Executive Officer
Joseph P. Vitale, President and Chief Operating Officer.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
<PAGE>
Liquidity and Capital Resources
In June 1998, the Company entered into a new three-year credit facility
with Citizens Business Credit Company of Boston, Mass. (the "Credit Facility").
The new Credit Facility provides for an increased revolving line of credit of
$3,000,000 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, Inc., an Ontario corporation which is the Company's largest
stockholder ("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 September 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. The Company owed $1,748,106 under the credit facility at
September 30, 1998.
Net cash used by operations for the twelve months ended September 30, 1998
amounted to $28300 as compared to cash being provided by operations of $607,000
for the comparable prior period. The primary reason for the use of cash in
operations was the decrease in income from operations of approximately $640,000
and from an increase in trade receivables of approximately $1.1 million due to
delayed collections in major New York City projects (subsequent to September 30,
1998, collections from these receivables have improved). However, the Company
further anticipates meeting its future cash requirements through continuation of
the negotiation of certain 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 closely monitor this program throughout fiscal 1999.
The ratio of the Company's current assets to current liabilities increased
to approximately 2.8 to 1 at September 30, 1998 from 2.04 to 1 at September 30,
1997 due to the non-current classification of the new three year Credit Facility
with Citizens Business Credit Company.
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. This
could be considered an area of risk and concern. However, 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
<PAGE>
significant portion or even total payment, even when Firetector's immediate
account debtor's (contractor) creditors have seized a project.
RESULTS OF OPERATIONS
Revenues
During fiscal 1996 and 1997 management focused on reorganizing, retraining
and replacing personnel and cost control after several years of financial
difficulty. These efforts resulted in record profitability in those years but
did serve to restrain sales and marketing efforts, and ultimately lowered
revenues in 1998. With its reorganized cost and personnel program essentially
complete, during 1998, at the expense of short-term profitability, management
intensified sales and marketing with the hiring of several sales, marketing,
customer service, engineering and field support personnel. In addition, the
Company commenced work on numerous projects involving limited initial gross
profit in anticipation of additional revenue with higher gross margin or
supplemental service and tenant revenues. The Company also became a distributor
of several new products and commenced marketing in new regions such as Long
Island, Pennsylvania, St Louis and California. Management believes this strategy
is directly responsible for the Company's near record order position. Also see
section entitled Order Position.
Total revenues in 1998 amounted to $14.3 million, a decrease of 11%
compared to revenues of $16.0 million in 1997. This decrease was primarily due
to a 13% decline in product revenues in 1988 to $10.0 million as compared to
$11.5 million in 1997. This decrease was attributed to fewer significant
construction projects in both the New York and Dallas market areas. In addition,
product revenues during 1997 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.
Service revenues decreased 5% in 1998 to $4,274,000. The decrease in
service revenues reflects lower than normal call-in maintenance service on
Firetector systems and other systems.
Gross Profit
Gross profit from product revenues decreased 16% in 1998 to $3,280,000
while gross profit margin on product revenues decreased from 33.8% to 32.7%
primarily due to lower product revenues and reduced overhead absorption.
Gross profit on service revenues decreased slightly in 1998 from 37.8% to
37.2% in 1997. This decrease reflects the effect of lower call-in maintenance
service revenue in 1998 on essentially fixed overhead.
<PAGE>
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses decreased by 2% or $66,000 in
1998 over 1997 as a result of the Company's previous cost containment program.
As discussed above, during 1998 the Company intensified its marketing efforts
and expanded its product line and territory. While this effort has offset
savings in selling, general and administrative costs, the Company has achieved
an improvement in new order bookings and near record backlog of orders, as noted
below.
Income Before Tax
Operating income declined in 1998 to $261,000 compared to $902,000 in
fiscal 1997. The decline in operating income was primarily the result of lower
product revenues as 1997 included product sales from a major sports facility in
Texas and shipments on several major projects in New York. While the decline in
operating income during 1998 was related to lower product shipments and reduced
call-in service revenues, the decline was minimized by lower selling, general
and administrative expenses, and lower depreciation and amortization. In
addition, there was an increase in interest expenses in 1998 due to the
conversion of $675,000 of preferred stock into notes payable with interest of
10% (see Note 2 to Financial Statements).
Tax Provisions
The Company's current income tax provision represent state and local income
taxes and the alternative minimum tax for Federal income purposes. Firetector
retains approximately $908,000 of additional net operating loss carry forwards.
Order Position
Firetector's order position, excluding service, increased to $9.6 million
at September 30, 1998 from $5.7 million at September 30, 1997 reflecting in part
management's recent intensified marketing efforts. The higher order position
reflects the receipt in 1998 of significant new orders from several major subway
complexes, a major media company, an auction house, and a museum. Due to the
fact that the Company's products are sold and installed as part of larger
construction or mass transit projects, there is typically a delay between the
booking of the contract and its revenue realization. The order position includes
and the Company continues to bid on 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 1999, Management intends to focus on it's intensified
marketing programs that were begun in 1998 and to continue to contain fixed
overhead as well as to reduce variable costs through improved efficiency and
productivity. Enhancements in recent years 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
<PAGE>
customer) cost responsibility. Management will also focus its efforts in 1999 to
improve accounts receivable collections in order to reduce the number of days
sales outstanding. Management believes that Firetector will generate sufficient
cash flow from operations to meet its obligations. Management believes that the
Company's balance sheet is in a good condition after the changes made in the
past few years.
YEAR 2000.
The Company has conducted an evaluation of the actions necessary in order
to ensure that its computer systems will be able to function without disruption
with respect to the application of dating systems in the Year 2000. As a result
of these evaluations the Company is in the process of upgrading and replacing
certain of its computer information and other computer systems so as to be able
to operate without disruption due to Year 2000 issues. The Company does not
anticipate that the costs of its remedial actions will be material to the
results of operations or financial condition. However, there can be no assurance
that the remedial actions being implemented by the Company will be completed by
the time necessary to avoid dating systems problems or that the cost of doing so
will not be material. Performance of the Company's proprietary products is not
date sensitive. However, date information is displayed on certain console
equipment. The Company has completed software changes so that its proprietary
equipment is also compliant with respect to display information and the Company
is installing these software upgrades to customer equipment in buildings as part
of normal maintenance service. In addition, disruptions with respect to the
computer systems of vendors or customers, which systems are outside the control
of the Company, could impair the ability of the Company to obtain necessary
materials or products or to sell to or service their customers. However, there
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems would
not have a material adverse effect on the Company.
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.
<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, 1998 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, 1998. 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, 1998 and the consolidated results of
their operations and their cash flows for each of the two fiscal years in the
period ended September 30, 1998, in conformity with generally accepted
accounting principles.
New York, NY
November 25, 1998 MOORE STEPHENS, P.C.
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30,
1998
--------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $105,000
Accounts receivable, principally trade, less allowance
for doubtful accounts of $190,000 4,868,000
Inventories 1,902,000
Deferred taxes 168,000
Prepaid expenses and other current assets 125,000
-------------
TOTAL CURRENT ASSETS 7,168,000
-------------
PROPERTY, PLANT AND EQUIPMENT -at cost, less
accumulated depreciation and amortization of $812,000 346,000
SOFTWARE DEVELOPMENT COSTS, net 3,000
OTHER ASSETS 279,000
DEFERRED TAXES 206,000
------------
TOTAL ASSETS $8,002,000
============
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30,
1998
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to Mirtronics $393,000
Notes payable - principally to related party 70,000
Accounts payable and accrued expenses 1,738,000
Unearned service revenue 343,000
Current portion of capital lease obligations 24,000
------------
TOTAL CURRENT LIABILITIES 2,568,000
------------
Note payable to bank 1,748,000
Notes payable- principally to related party, less
current portion 222,000
Capital lease obligations, less current portion 18,000
------------
TOTAL LIABILITIES 4,556,000
------------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 13)
STOCKHOLDERS' EQUITY
Convertible preferred stock, 2,000,000 shares authorized-
$1.00 par value; none issued and outstanding
Common stock, 25,000,000 shares authorized, $.001
par value; issued and outstanding 1,571,097 shares 2,000
Capital in excess of par 5,159,000
Deficit (1,715,000)
------------
TOTAL STOCKHOLDERS' EQUITY 3,446,000
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,002,000
============
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $10,025,000 $11,545,000
Service revenue 4,274,000 4,484,000
----------- ------------
Total revenues 14,299,000 16,029,000
----------- ------------
Cost of sales 6,745,000 7,637,000
Cost of service 2,682,000 2,788,000
Selling, general and administrative 4,198,000 4,264,000
Interest expense 260,000 242,000
Depreciation and amortization expense 206,000 246,000
Other (income) - net (53,000) (50,000)
------------ ------------
14,038,000 15,127,000
------------ ------------
Income from operations before provision
for income taxes 261,000 902,000
Provision for income taxes:
Current 50,000 110,000
Deferred (10,000)
------------ ------------
50,000 100,000
------------ ------------
Net Income $211,000 $ 802,000
============ ============
Earnings Per Common Share
Basic Earnings Per Share $0.15 $0.68
Diluted Earnings Per Share $0.11 $0.34
=========== ============
Weighted Average Number of Common Shares Outstanding 1,420,045 1,176,522
Weighted Average Number of Common and Potential Dilutive
Common Shares Outstanding 2,145,202 2,372,654
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. and
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
TOTAL
STOCKHOLDERS' PREFERRED STOCK COMMON STOCK
EQUITY SHARES AMOUNT SHARES AMOUNT
---------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $3,435,000 675,000 $675,000 3,548,399 $4,000
Issuance of shares from exercise
of options 200
Retirement of Shares (327,000) (25,312)
Net Income 802,000
------------ ----------- ---------- ---------- ---------
Balance at September 30, 1997 $3,910,000 675,000 $675,000 3,523,287 $4,000
Issuance of shares from exercise
of options $552,000 1,840,000 2,000
Debt restructuring ($675,000) (675,000) (675,000)
Retirement of Shares ($552,000) (650,000) (1,000)
Reverse stock split (1 for 3) $ 0 (3,142,190) (3,000)
Net Income $211,000
----------- ----------- --------- ----------- ---------
Balance at September 30, 1998 $3,446,000 0 0 1,571,097 2,000
=========== =========== ========= =========== =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. and
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
(continued)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
CAPITAL RETAINED
IN EXCESS EARNINGS
OF PAR (DEFICIT)
--------------- ------------
<S> <C> <C>
Balance at September 30, 1996 $5,484,000 ($2,728,000)
Issuance of shares from exercise
of options
Retirement of Shares (327,000)
Net Income 802,000
------------ ------------
Balance at September 30, 1997 $5,157,000 ($1,926,000)
Issuance of shares from exercise
of options 550,000
Debt restructuring
Retirement of Shares (551,000)
Reverse stock split (1 for 3) 3,000
Net Income 211,000
------------ -----------
Balance at September 30, 1998 5,159,000 (1,715,000)
============ ===========
</TABLE>
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $211,000 $802,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 225,000 246,000
Provision for doubtful accounts 113,000 72,000
Changes in operating assets and liabilities:
Accounts receivable (1,160,000) (642,000)
Inventories, prepaid expenses and other current assets (44,000) 394,000
Accounts receivable from affiliated companies 493,000 (80,000)
Other assets (13,000) (25,000)
Accounts payable and accrued expenses 395,000 57,000
Unearned service revenue 6,000 (236,000)
Due to affiliated companies (509,000) 19,000
------------ -----------
NET CASH PROVIDED (USED IN) BY OPERATING ACTIVITIES (283,000) 607,000
------------ -----------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (54,000) (153,000)
------------ -----------
NET CASH (USED IN) INVESTING ACTIVITIES (54,000) (153,000)
------------ -----------
FINANCING ACTIVITIES
Borrowings under new revolving credit agreement 1,748,000
Principal payments on revolving line of credit, long-term
debt, notes payable and capital lease obligations (2,004,000) (450,000)
Proceeds from revolving line of credit, notes payable and
capital lease obligations 119,000 78,000
Issuance of common stock in connection with exercise of options 552,000
Repurchase of common stock (552,000)
------------ ----------
NET CASH (USED IN) FINANCING ACTIVITIES (137,000) (372,000)
------------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (474,000) 82,000
Cash and cash equivalents at beginning of period 579,000 497,000
----------- -----------
Cash and cash equivalents at end of period $105,000 $579,000
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest 211,000 225,000
Income tax 159,000 106,000
</TABLE>
<PAGE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the years ended September 30, 1998 and 1997, the Company incurred capital
lease obligations of $11,000 and $36,000 respectively, in connection with lease
agreements to acquire equipment.
On December 1, 1996, the Company reacquired 8,437 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.
The Company exchanged preferred stock and notes payable to Mirtronics by the
issuance of $845,000 of new notes. (See Note 2 - Transactions with Related
Parties).
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
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, 1998, 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", which began operating as a division of Casey during 1998), 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"),
an Ontario publicly-held corporation.
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.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
1. Summary of Significant Accounting Policies (continued)
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 $129,000 (net of accumulated amortization of
$45,000) and relates principally to the 1990 acquisition of GenSound. This
amount is being amortized over forty years under the straight line method. The
acquisition cost of the service contracts ($191,000) was completely 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.
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.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
1. Summary of Significant Accounting Policies (continued)
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
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 quarter ended 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 Company's employee stock options,
non-employee stock options, warrants and convertible notes and preferred stock.
The computation for 1997 has been restated to conform to the requirements of
SFAS No. 128. (See Note 10). The EPS and Weighted Average Shares Outstanding
have been retroactively adjusted to give effect to a 1 for 3 reverse split of
common stock that was effective in September 1998.
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, 1998 are due from customers in New
York.
At September 30, 1998, the Company had approximately $160,000 based on checks
that had not cleared the financial institutions that are subject to insured
amount limitations. The Company does not require collateral to support financial
instruments subject to credit risk.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
1. Summary of Significant Accounting Policies (continued)
Stock Options and Similar Equity Instruments
The Company adopted the disclosure requirements of Statement 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 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 measured. (see Note 12).
2. Transactions with Related Parties
In consideration of collateral support for a previous credit facility for the
Company and various loans over several years, the Company had granted to
Mirtronics options to purchase the Company's Common Stock. Mirtronics had the
right to acquire up to an aggregate of 613,333 shares of common stock at an
exercise price of $.90 per share, a portion of which were held for the benefit
of the Company's Chairman. These options were to expire on December 31, 1998
(See Note 12). In addition, the Company had previously entered into a
Debt/Equity Agreement with Mirtronics, that provided for the retirement of debt
and the issuance to Mirtronics of 225,000 shares of Preferred Stock, which could
also be converted into 450,000 shares of common stock (675,000 and 1,350,000
respectively, before giving effect to the one for three reverse split).
In February 1998, the Company and Mirtronics reached an agreement to reorganize
the options, convertible debt and preferred stock held by Mirtronics so as to
reduce the potential dilution of these securities by 366,667 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 563,333 shares of common stock.
In satisfaction thereof, Firetector issued a $620,000 Convertible Note with
interest at 10% (payable upon demand and convertible into 413,333 shares of
common stock at a conversion price of $1.50 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 as to repayment based upon
covenant requirements and borrowing availability under the terms of the
Company's Credit Facility. Also in connection with this reorganization,
Mirtronics exercised 613,333 options for common stock for an aggregate
consideration of $552,000 and Firetector simultaneously repurchased and retired
216,667 of the newly issued shares for $552,000.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
2. Transactions with Related Parties (continued)
In September 1998, the Company entered into a Debt Matching Agreement with
Mirtronics whereby an aggregate of $508,619 due by Mirtronics to Firetector was
applied to reduce the notes payable and interest due by Firetector to
Mirtronics. As a consequence of this debt matching agreement, the $225,000
Non-Convertible note with interest of $13,870 was satisfied in full and the
$620,000 Convertible Note with interest of $38,219 was reduced to a new balance
of $392,973. In addition, the right to convert this note into 413,333 shares of
common stock was surrendered in consideration for a new warrant to purchase
310,000 shares of common stock (the "1998 warrants"). These 1998 warrants are
exercisable at anytime until December 31, 2003 at an exercise price of $1.02 per
share.
In consideration of collateral support for the Company's Credit Facility in
1994, the Company granted Genterra Capital Corporation, an Ontario Corporation,
("GCC" ) formerly known as First Corporate Capital Inc.) options for 166,667
unregistered shares of the Company's common stock at $.90 per share through
December 31, 1999. In July 1996, GCC exercised 33,334 of these options at $.90
per share. An officer of GCC is also a director of Mirtronics (See Note 12).
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 8,437 shares of common stock from the officer/director at a
price of $38.88 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 8,437 shares at
a price of $38.88 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
2,917 shares of common stock at $1.00 per share exercisable through March 15,
2001.
3. Property, Plant and Equipment
Property and equipment (including those arising from capital leases) are
summarized as follows:
September 30,
1998
----------
Machinery and equipment $942,000
Furniture and fixtures 126,000
Equipment under capitalized leases 48,000
Leasehold improvements 42,000
----------
1,158,000
Less accumulated depreciation and
amortization 812,000
----------
$346,000
==========
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
Annual amortization of equipment under capital leases is included with
depreciation and amortization expense.
Depreciation expense was $168,000 and $154,000 for the years ended September 30,
1998 and 1997, 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 $19,000 and $37,000 for the years ended September 30, 1998 and
1997, respectively, has been included in cost of sales. Accumulated amortization
was $181,000 at September 30, 1998.
5. Long-Term Debt
In 1998, the Company entered into 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 through June 2001
and carries an interest rate of prime plus 3/4% on outstanding balances (9.25%
at September 30, 1998). The Credit facility limits capital expenditures to
$250,000 in each year. At September 30, 1998 $1,748,000 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.
The Credit Facility includes certain restrictive covenants, which among other
things, impose limitations on declaring or paying dividends, acquisitions and
capital expenditure. The Company is also required to maintain certain financial
ratios. At September 30, 1998, the Company was not in default of any of its
financial covenants.
Annual maturities of Notes/Loans Payable are as follows:
Bank Other Notes
Loan Payable
------------ ---------------
1999 $463,000
2000 54,000
2001 1,748,000 54,000
2002 51,000
2003 47,000
Thereafter 16,000
----------- ---------
Total $1,748,000 $685,000
=========== =========
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
5. Long-Term Debt (continued)
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.
At September 30, 1998, the notes payable to Mirtronics totaled $393,000. While
these notes are payable on demand, they are subordinate to and subject to a
payment restriction under the Company's Credit Facility with its bank. These
notes are subordinate to and repayment was not permitted under the Company's
previous loan agreement, therefore, they were previously classified as a
non-current liability.
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, 1998:
Capital Operating
Leases Leases
------- ----------
1999 $38,000 $260,000
2000 10,000 178,000
2001 2,000 119,000
2002 112,000
2003 88,000
Thereafter 26,000
--------- -----------
Total minimum lease payments $50,000 $783,000
===========
Less amount representing interest 8,000
---------
Present value of net minimum
lease payments (including
current portion of $33,000) $42,000
=========
Rental expense amounted to $237,000 and $237,000 for the years ended September
30, 1998 and 1997, respectively.
7. Significant customers
During fiscal 1998, no customer accounted for more than 10% of sales. In fiscal
1997, one customer accounted for approximately $1,900,000 or 12% of revenues.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
8. Income Taxes
During the year ended September 30, 1998 the Company recorded a tax provision of
$50,000, compared to $100,000 for the year ended September 30, 1997. A
reconciliation of such with the amounts computed by applying the statutory
federal income tax rate is as follows:
Year ended September 30,
1998 1997
-------- --------
Statutory federal income tax rate 34% 34%
Computed expected tax from income $89,000 $306,000
Increase in taxes resulting from:
State and local income taxes, net of
Federal tax benefit 31,000 78,000
Alternative minimum tax 7,000 19,000
Nondeductible expenses 2,000 3,000
--------- ---------
Actual tax applicable to income 129,000 406,000
Increase (decrease) in taxes resulting from:
Reduction in valuation allowances to give
effect to use of net operating loss
carryforwards (136,000) (531,000)
Reduction of estimated state tax benefit
for future use of net operating losses 57,000 225,000
--------- ----------
Provision $ 50,000 $100,000
========= ==========
The Company provided $25,000 and $6,000 for state and local franchise and
capital taxes for the years ended September 30, 1998 and 1997, respectively.
These expenses have been included in selling, general and administrative
expenses for each of the years presented.
The Company has accumulated approximately $908,000 of net operating losses as at
September 30, 1998 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 between fiscal years 2008 to
2010.
The Company has recorded a deferred tax asset of approximately $374,000 at
September 30, 1998 related principally to its net operating loss carryforwards.
In 1999 the Company expects to realize all of the deferred tax asset, as a
consequence the valuation allowance was decreased by $136,000 to zero during the
year ended September 30, 1998. The expected realization is based on experiencing
four consecutive years of profits. Management anticipates profitable operations
to continue at a level that will result in the utilization of the entire
deferred tax asset.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
8. Income Taxes (continued)
The following summarizes the operating tax loss carry forwards by year of
expiration:
Amount Expiration Date of Tax Loss Carryforward
$338,000 September 30, 2008
$570,000 September 30, 2010
9. Stock Split
On September 24, 1998, the Company effected a one for three reverse stock split
of the outstanding shares of common stock of the Company. All references in the
accompanying financial statements to the number of common shares and per share
amounts have been restated to reflect the reverse stock split.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
10. Earnings Per Share
Shown below is a table that presents for 1998 and 1997 the computation of basic
earnings per share, diluted earnings per share, weighted shares outstanding, and
weighted average shares after potential dilution. All earnings per share data,
stock option data, and weighted shares outstanding have been restated to give
effect to the Company's 1 for 3 reverse stock split that was effective in
September 1998.
Year Ended
Basic EPS Computation 1998 1997
- --------------------- ------------ ------------
Net Income available to common
shareholders $211,000 $802,000
Weighted average outstanding shares 1,420,045 1,176,522
Basic EPS $.15 $.68
Diluted EPS Computation
Income available to common
shareholders $211,000 $802,000
Impact of convertible notes 26,000 10,000
Diluted net income $237,000 $812,000
Weighted-average shares 1,420,045 1,176,522
Plus: Incremental shares from
assumed conversions
Non Employee Stock Options 251,724 589,818
Convertible preferred stock 172,602 450,000
Convertible debt 254,795 112,000
Employee Stock Options 46,036 36,956
Warrants* 7,358
----------- ----------
Dilutive potential common shares 725,157 1,196,132
----------- ----------
Adjusted weighted-average shares 2,145,202 2,372,654
----------- ----------
Diluted EPS $.11 $.34
=========== ==========
*Warrants convertible into 33,334 and 16,667 shares were antidilutive in the
years ending September 30, 1998 and 1997, respectively.
11. Other Matters
a. Product development costs charged to income approximated $128,000 and
$113,000, for the years ended September 30, 1998 and 1997, respectively.
b. Selling, general and administrative expenses include provisions for doubtful
accounts amounting to $113,000 and $87,000 for the years ended September 30,
1998 and 1997, respectively.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
12. 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 the 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).
Effective September 30, 1998, all outstanding employee stock options were reset
to an exercise price of $1.00 per share.
The Company applies the instrinsic value base method of accounting for options
issued to employees rather than the fair value based method of accounting. 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:
1998 1997
Net Income (in thousands):
As reported $211,000 $802,000
Pro forma 211,000 751,000
Earnings per common share:
As reported $0.11 $0.34
Pro forma 0.11 0.32
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 1998 and 1997: dividend
yield of zero; expected volatility of 92% and 81% and expected life of 4 years.
The weighted average risk fee interest rates for 1998 and 1997 were 6.30% and
6.00%, respectively. The weighted average fair value of options granted during
1997, for which the exercise price equaled the market price on the grant dates,
was $3.06. However, the option price for all employee stock options outstanding
was reset to $1.00 effective September 30,1998.
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 managements'
opinion, the existing models do not necessarily provide a reliable
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
12. Employee Stock Options, Options, and Warrants (continued)
single measure of the fair value of employee stock options.
Transactions involving stock options are summarized as follows:
Weighted Average
Exercise Price of
Stock Options Outstanding Options Outstanding
---------------------------------------------
Balance October 1, 1996 175,000 $1.10
Granted 88,750 1.02
Exercised/Expired 44,875 1.13
Balance September 30,1997 218,875 1.06
1 for 3 Reverse Stk Split (145,917) 3.18
Balance September 30, 1998 72,958 1.00
There were 42,709 exercisable options at September 30, 1998 and 23,325
exercisable options at September 30, 1997. These employee stock options are
exercisable at a newly reset option price of $1.00 per share.
The following table summarizes information concerning currently outstanding and
exercisable stock options.
Outstanding at Weighted Average Exercisable at
Exercise Price September 30, 1998 Contractual Life September 30,1998
$1.00 27,250 2.5 years 27,250
1.00 16,125 2.5 years 8,063
1.00 4,500 3.3 years 1,125
1.00 25,083 4.0 years 6,271
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. In February 1998, the
Company and Mirtronics agreed to restructure the options, convertible debt and
preferred stock, and in September 1998, the Company and Mirtronics entered into
a Debt Matching Agreement to offset obligations with each other and for
Mirtronics to surrender the conversion option on 413,333 shares of common stock
for a new warrant for 310,000 shares of common stock.
(See Note 2 - Transaction with Related Parties).
In February 1994, the Company issued options to purchase 166,667 unregistered
shares of common stock at a $.90 per share to GCC in consideration of providing
an income guaranty to support the Company's Credit Facility. 33,334 of these
options were exercised in July 1996. (also see Note 2 "Transactions with Related
Parties").
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
12. Employee Stock Options, Options, and Warrants (continued)
In May 1995, the Company granted Judson Enterprises, Ltd. 33,334 options to
purchase common stock at a price of $3.00 per share in exchange for investment
banking services. In April 1997, the Company entered into an agreement to
exchange 16,667 of these options for 16,667 new options to purchase common stock
at a price of $4.50. Based on calculations done in accordance with the
requirements of SFAS 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, 1996 2,377,500 $ .33
Granted 50,000 1.50
Exercised/Expired (50,000) 1.00
Balance September 30,1997 2,377,500 .34
Exercised/Expired (1,847,500) .30
1 for 3 Reverse Stk Split (353,333) 1.30
Effect of Debt Matching 310,000 1.02
Balance September 30, 1998 486,667 $1.17
All of these options were exercisable at the end of the periods indicated in the
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, 1998 Contractual Life September 30, 1998
$.90 143,333 .2 years 143,333
3.00 16,667 2.5 years 16,667
4.50 16,667 3.5 years 16,667
1.02 310,000 5.3 years 310,000
13. 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 affect the Company's business or financial condition.
14. Other
Approximately 39% of the Company's employees are covered by collective
bargaining agreements. The present contract will expire in July 1999.
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
14. Other (continued)
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. In 1998 there was no profit sharing
contribution and in 1997 a contribution of $22,500 was charged to expense .
15. 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.
16. Authoritative Pronouncements
In June 1997 the Financial Accounting Standards Board ("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.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. Earlier application is
permitted. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Management is in the process of
determining its preferred format.
The adoption of SFAS No. 130 will have no impact on the Company's consolidated
results of operations, financial position or cash flows.
SFAS No. 131 changes how operating segments are reported in annual financial
statements and requires the reporting of selected information about operating
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998
14. Other (continued)
segments in interim financial reports issued to shareholders. SFAS No. 131 is
effective for periods beginning after December 15, 1997, and comparative
information for earlier years is to be restated. SFAS No. 131 need not be
applied to interim financial statements in the initial year of its application.
The Company is in the process of evaluating the disclosure requirements.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pensions and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
The FASB has issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of derivative and
how it is designated, for example, gain or losses related to changes in the fair
value of a derivative not designated as a hedging instrument is recognized in
earnings in the period of the change, while certain types of hedging may be
initially reported as a component of other comprehensive income (outside
earnings) until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No, 133.
Earlier application of all of the provisions of SFAS No. 133 is not to be
applied retroactively to financial statements of prior periods. The Company will
evaluate the new standard to determine any required new disclosures or
accounting.
<PAGE>
FIRETECTOR INC.
CORPORATE DATA
SECURITIES TRADING
Common Stock Nasdaq symbol - FTEC
TRADING RANGES of COMMON STOCK
Quarter Ending High Low
- -------------- -----------------------
December 31, 1996 1 3/4 7/8
March 31, 1997 1 15/16 1
June 30, 1997 1 5/8 1 1/8
September 30, 1997 1 9/32 15/16
December 31, 1997 1 1/8 5/8
March 31, 1998 1 1/4 3/4
June 30, 1998 1 1/4 25/32
September 30, 1998 1 1/4 1/4
The above quotations represent inter-dealer prices, without adjustment for
retail mark-ups, mark-downs or commissions and do not necessarily represent
actual transactions.
RECORD HOLDERS
As of December 18, 1998, there were 617 record holders of Common Stock.
DIVIDENDS
Firetector Inc. has never paid any cash dividends on its Common Stock and the
payment of cash dividends is not expected in the foreseeable future. Firetector
Inc.'s loan agreements prevent the payment of dividends. The payment of future
dividends will depend on earnings, capital requirements, financial conditions
and other factors considered relevant by the Board of Directors.
Annual Report on Form 10-KSB
Firetector Inc.'s Annual Report on Form 10-KSB as filed with the Securities and
Exchange Commission on December 29, 1998 will provide additional information
about Firetector Inc. A copy of the report is available without charge to
Stockholders upon request to:
Corporate Secretary
Firetector Inc.
262 Duffy Avenue
Hicksville, New York 11801
(516) 433-4700
TRANSFER AGENT OF ALL CLASSES
American Stock Transfer & Trust Company
GENERAL COUNSEL
Dolgenos Newman & Cronin LLP
INDEPENDENT AUDITORS
Moore Stephens, P.C.
DIRECTORS AND EXECUTIVE OFFICERS
Daniel S. Tamkin, Chairman of the Board, Chief
Executive Officer, General Counsel; Executive Vice
President of Forum Financial Corporation
Joseph Vitale, President, Director
John A. Poserina, Chief Financial Officer,
Secretary, Treasurer and Director
Dennis P. McConnell, Director; Dolgenos Newman
& Cronin LLP
Henry Schnurbach, Director, President of
Cantar/ Polyair Inc.
