<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, 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 February 10, 1998,
1,571,097 shares of Registrant's Common Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
1
<PAGE>
INDEX
Page
Part I - Financial Information (unaudited)
Item 1. Financial Statements.
Consolidated Balance Sheet as at December 31, 1998 4
Consolidated Statements of Operations for the Three Month 6
Periods Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Three 7
Month Periods Ended December 31, 1998 and 1997
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
<PAGE>
Part I - FINANCIAL INFORMATION
Beginning on the following page is the financial information
required to be filed as part of Part I of this Report.
3
<PAGE>
Part I - FINANCIAL INFORMATION
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet
Unaudited
December 31,
1998
----------------
ASSETS
Current assets:
Cash and cash equivalents $ 18,785
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $208,441 4,584,296
Inventories 2,113,580
Deferred taxes 168,000
Prepaid expenses and other current assets 156,805
-------------
TOTAL CURRENT ASSETS 7,041,466
-------------
Property, Plant and Equipment at cost, less
accumulated depreciation and
amortization of $856,347 318,958
Software Development Costs, net 2,322
Other Assets 268,958
Deferred Taxes 171,000
-------------
Total assets $7,802,704
=============
See accompanying Notes to the Consolidated Financial Statements.
4
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
December 31,
1998
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to Mirtronics $ 402,797
Notes payable-principally to affiliate 63,139
Accounts payable and accrued expenses 1,702,964
Unearned service revenue 275,911
Current portion of capital lease obligations 24,797
------------
TOTAL CURRENT LIABILITIES 2,469,608
Note payable to bank 1,566,378
Other notes payable, less current portion 208,393
Capital lease obligations, less current portion 12,351
------------
TOTAL LIABILITIES 4,256,730
------------
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
1,571,097 shares 1,571
Capital in excess of par 5,158,624
Deficit (1,614,221)
-----------
TOTAL STOCKHOLDERS' EQUITY 3,545,974
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,802,704
===========
See accompanying Notes to the Consolidated Financial Statements.
5
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For The Three Months Ended
December 31,
1998 1997
----------- ----------
Net sales $2,559,069 $1,719,812
Service revenues 1,001,247 1,127,541
----------- ----------
Total revenues 3,560,316 2,847,353
----------- ----------
Cost of sales 1,614,488 1,109,366
Cost of service 675,477 669,276
Selling, general and administrative 1,016,790 961,319
Interest expense 51,271 55,239
Depreciation and amortization expense 51,804 52,076
Other (income) net (10,055)
----------- ----------
3,409,830 2,837,221
----------- ----------
Income from operations before
provision for income taxes 150,486 10,132
Provision for income taxes:
Current 15,000 4,000
Deferred 35,000
---------- ----------
50,000 4,000
---------- ----------
Net income $ 100,486 $ 6,132
========= ==========
Earnings per common share
Basic earnings per share $ 0.06 $ nil
Diluted earnings per share $ 0.06 $ nil
========= ==========
Weighted average number of common
shares outstanding 1,571,097 1,176,522
Weighted average number of common
and potential dilutive
common shares outstanding 1,913,790 2,224,803
See accompanying Notes to the Consolidated Financial Statements.
6
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For The Three Months Ended
December 31,
1998 1997
--------- ---------
OPERATING ACTIVITIES
Net income $100,486 $ 6,132
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 51,804 60,885
Provision for doubtful accounts 18,000 18,000
Changes in operating assets and liabilities:
Accounts receivable 266,146 (79,101)
Inventories, prepaid expenses and other
current assets (243,026) 19,723
Accounts receivable from affiliated
companies (28,394)
Other assets 37,823 45,735
Accounts payable and accrued expenses (34,935) (155,968)
Unearned service revenue (67,024) 25,206
Due to affiliated companies 1,751
--------- ---------
NET CASH PROVIDED (USED IN) BY OPERATING
ACTIVITIES 129,274 (86,031)
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (17,995) (13,552)
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (17,995) (13,552)
--------- ---------
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long term debt, notes payable
and capital lease obligations (207,228) (43,604)
Proceeds from revolving line of credit,
notes payable and capital
lease obligations 9,824 1,841
--------- ---------
NET CASH (USED IN)FINANCING ACTIVITIES (197,404) (41,763)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (86,125) (141,346)
Cash and cash equivalents at beginning
of period 104,914 579,052
--------- ---------
Cash and cash equivalents at end of period $ 18,789 $437,706
========= =========
See accompanying Notes to the Consolidated Financial Statements.
7
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 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 three months ended December 31, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending
September 30, 1999. 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, 1998.
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 revolving credit facility with Citizens Business Credit
Company of Boston, Mass, (the "Credit Facility"). The 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. At December 31, 1998 $1,556,378 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 December 31, 1998, the Company was not in default of any of its
covenants.
4. NOTE PAYABLE TO MIRTRONICS
At December 31, 1998, the note payable to Mirtronics totaled $402,797. The note
may be converted into 310,000 shares of the Company's common stock at $1.02 per
share until December 31, 2003. While this note is payable on demand, they are
subordinate to and subject to a payment restriction under the Company's Credit
Facility with it's bank.
8
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
5. 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 $675,000 of Preferred Stock, which could also
be converted into 450,000 shares of common stock.
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.
In September 1998, the Company entered into a Debt Matching Agreement with
Mirtronics whereby an aggregate of $508,619 due to Firetector by Mirtronics 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.
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.
9
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - Continued
THREE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
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 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 the three months ending December 31, 1997
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 1998 1997
---- ----
Net Income available to common shareholders $100,486 $6,132
Weighted average outstanding shares 1,571,097 1,176,522
Basic EPS $.06 $.nil
===== ======
Diluted EPS Computation For the Three Months ended December 31,
1998 1997
---- ----
Income available to common stockholders
and assumed conversions $107,363 $6,132
-------- ------
Weighted-average shares 1,571,097 1,176,522
--------- ----------
Plus: Incremental shares from assumed
conversions
Non Employee Stock Option 26,061 520,208
Convertible preferred stock 450,000
Convertible debt 310,000 78,073
Employee Stock Options* 6,633
Warrants* _________ ___________
Dilutive potential common shares 342,694 1,048,281
------- ---------
Adjusted weighted-average shares 1,913,790 2,224,803
Diluted EPS $.06 $nil
========= ============
*Warrants and employee stock options convertible into 33,334 and 106,292 shares
were antidilutive for the three month periods ended December 31, 1998 and 1997,
respectively.
10
<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 three-year revolving credit facility with
Citizens Business Credit Company of Boston, (the "Credit Facility"). The Credit
Facility provides for a $3,000,000 revolving line of credit for a three year
period through June, 2001. The Credit Facility provides for interest at 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 December 31, 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 $1,566,378 under the credit facility at December
31, 1998.
Net cash provided by operations for the three months ended December 31, 1998
amounted to $129,274 as compared to cash being used by operations of $86,031 for
the comparable prior year period. The primary reason for the improved cash flow
from operations was the increase in income from operations.
The ratio of the Company's current assets to current liabilities increased to
approximately 2.85 to 1 at December 31, 1998 from 2.09 to 1 at December 31, 1997
due to the non-current classification of the Credit Facility.
Results of Operations
The Company's product revenues during the three months ended December 31, 1998
were $2,559,069 as compared to $1,719,812 for the comparable prior year period.
This represents a 49% increase in product revenues resulting from certain large
NYC projects where the Company acts as prime contractor, increased sales from an
audio project, and increased business in the Dallas market area. A portion
($263,000) of the product revenue increase was derived from work that was
completed by subcontractors for the Company and involves lower than normal gross
margin.
Service revenues decreased 10% during the current three month period to
$1,001,247 from $1,127,541 in the comparable prior year period. The decrease
reflects lower call-in maintenance service on fire systems, reduced pricing due
to competition and from the fact that personnel were diverted to certain
critical installation projects.
Gross profit on product revenues for the three months ended December 31, 1998
increased 55% to $944,581 as compared to $610,446 in the comparable prior year
period. This increase is due to the 49% increase in product revenues noted above
and the resulting overhead absorption.
11
<PAGE>
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Unaudited)
Gross profit on service revenues for the three months ended December 31, 1998
declined to 32% as compared with 41% for the comparable 1997 period. This
decline is attributed to decreased revenues on essentially fixed overhead cost
structure.
Income from operating activities for the three month period ended December 31,
1997 increased to $150,486 as compared to operating income of $10,132 for the
comparable 1997 period. This increase in operating income is primarily
attributed to the 49% increase in product revenues. This contribution to
operating income was mitigated to some extent by increased selling, general and
administrative expenses. During the last twelve months, the Company has
intensified its marketing efforts and expanded its product territory. As a
result the Company has experienced an improvement in new order bookings, as
noted below. During the 1997 period, other income represents interest on notes
receivable from Mirtronics. These obligations where extinguished in September
1998 through a Debt Matching agreement that reduced a like amount of notes
payable due to Mirtronics.
The Company had a deferred income tax provision in 1998 which reflects the
reduction of the deferred tax asset due to utilization of that portion of its
net operating loss that was recorded in prior years. The deferred tax provision
will not require the outlay of cash as the Company has a net operating loss for
tax purposes of approximately $730,000 at December 31, 1998. The Company's
current income tax provision represents state and local taxes and the
alternative minimum tax for federal income purposes.
The Company order position, excluding service, at December 31, 1998 amounted to
$9,300,000 as compared to $9,600,000 at September 30, 1998 and $5,100,000 at
December 31, 1997. The higher level of order position during the last two
quarters reflects in part the Company's recent intensified marketing efforts.
The higher order position reflects the receipt of significant new orders from
several major subway complexes, an auction house and a museum. Due to the fact
that the Company's products are sold and installed as part of larger
construction on mass transit projects, there is typically a delay between the
booking of the contract and its revenue realization. The Company expects to
fulfill the majority of its backlog over the next twelve months. The order
position includes, and the Company continues to bid on projects that might
include significant subcontractor labor, involving low margin but setting a
platform for future product additions, tenant installations and service
revenues.
12
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Ex-27 Financial data Schedule 15
b. Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended December
31, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRETECTOR, INC.
(Registrant)
Date: February 10, 1999 /S/JOHN A. POSERINA
-----------------------------
John A. Poserina, Chief Financial Officer, and
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, 1998 (Unaudited)
and the Consolidated Statement of Income for the Three Months Ended December
31, 1998 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 18,785
<SECURITIES> 0
<RECEIVABLES> 4,792,737
<ALLOWANCES> 208,441
<INVENTORY> 2,113,580
<CURRENT-ASSETS> 7,041,466
<PP&E> 1,175,305
<DEPRECIATION> 856,347
<TOTAL-ASSETS> 7,802,704
<CURRENT-LIABILITIES> 2,469,608
<BONDS> 0
0
0
<COMMON> 1,571
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,802,704
<SALES> 3,560,316
<TOTAL-REVENUES> 3,560,316
<CGS> 2,289,965
<TOTAL-COSTS> 3,409,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,271
<INCOME-PRETAX> 150,486
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 100,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,486
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
