SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-17580
FIRETECTOR INC.
(Exact name of Small Business Issuer in its charter)
Delaware 11-2941299
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
209 Lafayette Drive, Syosset, New York 11791
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code: (516) 433-4700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements by reference in Part III of this Form 10-KSB ( )
State issuer's revenues for its most recent fiscal year: $19,087,000
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the average bid and ask prices for the Registrant's
Common Stock, $.001 par value per share, as of December 14, 2000 was $748,536.
As of December 14, 2000, the Registrant had 1,704,425 shares of Common
Stock outstanding.
Documents Incorporated by Reference: Definitive Proxy Statement to be filed.
<PAGE>
`
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
Firetector Inc. ("Firetector" or the "Company") is a Delaware corporation
organized in October 1988 to acquire controlling interests in companies engaged
in the design, manufacture, sale and servicing of fire, life safety security,
energy management, intercom, audio-video communication and other systems.
Reference to Firetector or the Company include operations of each of its
subsidiaries except where the context otherwise requires. Firetector's business
is conducted through subsidiaries in New York City metropolitan area and Dallas
Texas.
Firetector Products
Firetector designs, manufactures, markets and sells its own proprietary life
safety and communication systems and also engineers, markets and sells systems
and products manufactured by other parties. Firetector's proprietary product
line features the COMTRAK 1720 and 2000 Life Safety Systems and the TELTRAK
Communications System.
In 1973, New York City passed Local Law 5 requiring that all office
buildings of 100 feet or more be outfitted with smoke detectors, manual and
audio communicating systems for life safety and fire reporting purposes. In
anticipation of the demand that this legislation would create for equipment and
systems employing improved technology and design features, Firetector engaged in
extensive research and development which led to its proprietary COMTRAK 1720
Life Safety System which has been installed in scores of buildings since the
early 1980's.
To meet the challenges of more stringent code requirements and a sluggish
market for new construction, Firetector developed its new generation proprietary
COMTRAK 2000 Life Safety System which utilizes the latest technology to not only
meet the current code requirements, and satisfy the "wish list" of current
COMTRAK customers, but many likely future code requirements as well. One of the
improvements incorporated into the COMTRAK 2000 is a Fire Command Station which
offers a color CRT display system along with three sectional displays. These
features provide the operator with a wide variety of pertinent information,
allowing for quicker response, which is critical in an emergency. In addition,
the expanded memory capability of the new Fire Command Station enables a single
station to control multi-building projects and permits simplified operation.
COMTRAK 1720 and 2000 Systems are operating in approximately 100 buildings
in New York City. Firetector has approvals from Factory Mutual and various New
York City agencies for the COMTRAK 1720 and COMTRAK 2000 System.
<PAGE>
TELTRAK Communications Systems. In the early 1980s, Firetector began
investigating the intercom market and the possibilities of utilizing its
computerized multiplex technology for this market. Significant construction of
new high-rise housing occurred in the 1970s and 1980s and increased the
potential demand for technologically advanced intercom systems. To meet this
demand, Firetector developed a micro-processor-based combination intercom and
security system using Casey's multiplex technology. The TELTRAK I intercom and
security system is capable of a variety of accessory functions in addition to
its basic intercom and security function. Firetector added video capabilities to
its TELTRAK I technology and created the TELTRAK II, for installation in luxury
condominium, cooperative and apartment buildings. Over 16,000 TELTRAK I and II
units have been sold. In 1991, the redesigned TELTRAK III intercom/security
station was introduced, with enhanced features to expand its use and
competitiveness in the face of the reduced market for these products. New
features, such as public address, enable important messages to be given to
building occupants either locally or by groups in case of emergency.
Other Products
In the past four years Firetector has sought to diversify its product lines
to establish a greater base to absorb product support, R & D and other overhead
and to provide product and customer diversification. To that end, Firetector has
augmented its established position in marketing engineered life safety systems
(proprietary and third party) by developing a significant business in engineered
sound systems for application to a variety of users including hospitals,
educational facilities and transit facilities (e.g. subway stations). Firetector
has developed a focused unit with a high level of experience to penetrate this
niche market with significant success as a substantial portion of Firetector's
order position derives from this effect. In addition, Firetector organized new
marketing units to focus on marketing, engineering and servicing systems and
products manufactured by third parties, particularly national manufacturers.
These units are service oriented organizations which focus on close
relationships with customers and key suppliers.
In 1993, Firetector acquired assets of a company which manufactured and
marketed sophisticated products and on-board information and communication
systems with applications for municipal transit carriers, long-distance
passenger carriers and bus and train builders. Firetector has integrated this
operation into its New York division and has to date supplied products to
customers such as ABB Traction, Sumitomo, Kawasaki, Morrison-Knudsen, Siemens,
the New York City Transit Authority and AMTRAK.
<PAGE>
Service
Firetector continues to put an increasing priority on the development of an
integrated and efficient service organization. Sales personnel have been
dedicated to securing service contracts and are intensifying efforts to market
service to COMTRAK and other Firetector projects coming out of warranty and the
renewal of such contracts. To improve efficiencies and productivity, Firetector
organized a division to perform cleaning on life safety systems, which was
previously subcontracted to an external entity. To improve customer service,
Firetector maintains an office in New York City which houses its New York
service management.
General Sound (Texas) Company
Firetector conducts business in Texas through its subsidiary, General Sound
(Texas) Company, which distributes, services, installs and designs a variety of
sound, fire alarm, intercom and security systems in the Dallas/Ft. Worth, Texas
area. General Sound concentrates its sales effort on the commercial market and
schools. General Sound provides its customers, primarily electrical contractors,
with engineered systems, assistance in design, installation support and
post-installation service.
General Sound has non-exclusive distribution agreements for the Dallas/Ft.
Worth area with Notifier, Dukane, and other manufacturers. The product mix and
dependence on individual suppliers varies from year to year depending on
customer requirements and market trends.
Research and Development
During the fiscal years ended September 30, 2000 and 1999, Firetector spent
approximately $135,000 and $129,000, respectively, for research and development
of Firetector's life safety and communication systems.
Customers and Suppliers
For the fiscal years ended September 30, 2000 and 1999, no customer
accounted for more than 10% of Firetector's revenues.
Regulations
Firetector believes that it is in compliance with applicable building codes,
zoning ordinances, occupational, safety and hazard standards and other Federal,
state and local ordinances and regulations governing its business activities.
<PAGE>
Competition
Firetector's business is competitive; some of Firetector's competitors may
have greater financial resources and may offer a broader line of fire and life
safety products. Firetector also faces competition in the servicing of systems
which it sells. Accordingly, even though Firetector may sell and install a fire
and life safety control and communications system, it may not receive the
contract to service that system. Firetector, however, believes that it can
effectively compete with any entity which conforms with applicable rules and
regulations.
Employees
Firetector and its subsidiaries have 125 full time employees, including 44
New York hourly employees that are covered by a Collective Bargaining Agreement
expiring June 2002.
Business Conditions
Firetector believes that its labor and material sources are sufficient and
that other than normal competitive factors, and what is discussed above or under
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION", Firetector's
operations and industry do not have any special characteristics which may have a
material impact upon its future financial performance.
Patents and Trademarks
The Company does not have any patents on its systems, but, it uses
proprietary technology which it seeks to protect as trade secrets. The
"Firetector", "Casey Systems" and "COMTRAK" trademarks are registered with the
United States Patent and Trademark Office.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 15,700 square feet of office, manufacturing
and warehouse space in Syosset, New York under a seven year lease expiring June
2007, The rental schedule provides for monthly rent of $13,966 during the first
and second years of the initial term and with 3.3% yearly increases for the
third thru seventh years.
The Company has a lease for approximately 4,000 square feet of office and
warehouse space in New York City. The lease term runs from October 1, 2000
through October 1, 2003. The lease agreement provided for annual rental fees of
$115,000, which includes the cost of certain services including electricity.
This lease can be terminated by either party giving 180 days notice.
The Company leases a 7,700 square foot office and warehouse facility in
Richardson, Texas, a suburb of Dallas, pursuant to a lease that was extended in
October, 1997 to expire on April 30, 2003 providing for annual rent on a net
basis of $51,700 escalating annually to $61,200 in the final year of the lease.
The Company has a 24 month renewal option on the lease which would allow for
rent at the prevailing market rate and tenant responsibility for any increase in
common area expenses over the 1997 base year. Management believes there is
sufficient space at this facility for its current and intended business.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of its operations, the Company has been or, from time
to time, may be named in legal actions seeking monetary damages. While the
outcome of these matters cannot be estimated with certainty, Management does not
expect, based upon consultation with legal counsel, that they will have a
material effect on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Firetector's Common Stock has been traded on the National Association of
Securities Dealer's Inc. Automated Quotation System ("NASDAQ") since April 11,
1989 under the "FTEC" symbol. The following table shows the high and low bid and
ask quotations for each fiscal quarter from December 31, 1998 through September
30, 2000 which quotations were obtained from the National Association of
Securities Dealers Inc.
Common Stock
Quarter Ended BID ASK
High Low High Low
-------------------------------------------------------
December 31, 1998 1 3/8 1/16 1 1/2 7/8
March 31, 1999 2 3/16 1 1/32 2 1/4 1 3/32
June 30, 1999 2 1/8 1 1/8 2 3/16 1 3/16
September 30, 1999 3 3/4 1 5/16 3 7/8 1 13/32
December 31, 1999 2 1 1/8 2 7/32 1 7/32
March 31, 2000 4 1 9/16 4 3/16 1 5/8
June 30, 2000 1 15/16 3 1/8 1 15/16 1 7/16
September 30, 2000 1 7/8 1 1/4 1 31/32 1 5/16
The above quotations represent prices between dealers, do not include
retail markups, markdowns or commissions and may not represent actual
transactions. As of December 14, 2000, there were 452 record holders of
Firetector's Common Stock.
On December 14, 2000 the bid and ask prices for the Common Stock were $.90
and $.84, respectively.
The Company has not paid any cash dividends on its Common Stock. Payment of
cash dividends in the foreseeable future is not contemplated by the Company.
Whether dividends are paid in the future will depend on the Company's earnings,
capital requirements, financial condition along with economic and market
conditions, industry standard and other factors considered relevant to the
Company's Board of Directors. Payment of dividends is restricted in certain
cases by the Company's credit facilities. Accordingly, no assurance can be given
as to the amount or timing of future dividend payments, if any.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
LIQUIDITY AND CAPITAL RESOURCES
In September 2000, the Company's $3 million dollar credit facility with Citizens
Business Credit of Boston (the "Credit Facility") was amended to extend the
expiration date from June 2001 to December, 2004. 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. Originally the terms of the
credit facility also required a $300,000 letter of credit by Mirtronics, Inc.,
an Ontario corporation which is the Company's largest stockholder
("Mirtronics"). The letter of credit was released by the lender in January, 2000
based on the terms of the Credit Facility.
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, 2000, the Company was not in default with any of its financial
covenants and at such time owed $1,433,000 under the credit facility.
Net cash provided by operations for the twelve months ended September 30,
2000 amounted to $621,000 as compared to $3,000 for the comparable prior period.
The primary reason for the increased amount of cash provided by operations was
due to an increase of $324,000 in operating profit before taxes. This increased
profit was achieved with only a $82,000 increase in inventory; while the prior
year period required a $353,000 increase in inventory to support the sales
anticipated in 2000. Also contributing to cash being provided by operations in
2000 was a $352,000 increase in accrued expenses, as well as, a $295,000
increase in taxes payable. The higher level of revenues in 2000 (an increase of
$2.2 million) was achieved without an increase in working capital requirements.
Accordingly the resulting cash flow was primarily used to reduce borrowing under
the Credit Facility by $607,000. The Company anticipates maintaining its future
cash position 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 2001.
The ratio of the Company's current assets to current liabilities declined
to approximately 2.55 to 1 at September 30, 2000 compared to 2.83 at September
30, 1999. This decrease is primarily due to the accrual in 2000 of federal
income taxes payable as the company's net operating loss carryforward was fully
utilized.
<PAGE>
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. 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 significant portion or even total payment, even when
Firetector's immediate account debtor's (contractor) creditors have seized a
project.
RESULTS OF OPERATIONS
Revenues
Total revenues in 2000 were $19.1 million, an increase of 13% compared to
revenues of $16.9 million in 1999. This increase was primarily due to a 17%
increase in product revenues in 2000 to $14.9 million as compared to $12.8
million in 1999. The product revenue increase is the result of the Company's
intensified and broadened marketing which generated transit and commercial
projects including several large audio/visual projects for a museum, a major New
York City rail station complex, several professional organizations, and the
second phase of a major airport facility. The Company also experienced increased
revenues from its fire alarm product line due in part from expansion into the
Long Island, NY market area.
Service revenues increased 2% in 2000 to $4,166,000. The increase in
service revenues reflects higher call-in maintenance service on life safety
systems.
Gross Profit
Gross profit dollars from product revenues increased 19% in 2000 to
$5,025,000 as a result of the 17% increase in product sales. Gross profit margin
on product revenues increased to 34.0% in 2000 compared to 33.0% in 1999, due to
the higher gross profit contribution to generally fixed overhead and from an
engineering and project management contract which carried a high gross margin.
Gross profit margin on service revenues increased slightly in 2000 to 29.7%
from 29.1% in 1999. This increase reflects the effect of higher call-in
maintenance service revenue in 2000 on essentially fixed overhead. This
improvement was achieved in spite of certain wage increases to service
technicians in both New York and Dallas.
<PAGE>
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses (S G+A) increased by 11% in
2000 over 1999 primarily as a result of the Company's expanded marketing
program. This expansion in marketing effort has resulted in higher revenues and
related profitability during 2000. The increase in S G + A includes commission
expense related to higher product revenues and included one time expenses of
$75,000 (2% of the increase in S G + A) to relocate the Company's operations to
a new facility in Syosset, NY. Occupancy costs also increased for the Company's
service facility in New York City due to increasing rental rates throughout New
York City. However, selling, general and administrative expenses as a percent of
sales declined to 26.3 % from 26.5% due to the increase in revenues.
Income Before Tax
Operating income increased in 2000 to $834,000 compared to $510,000 in
fiscal 1999. The improvement in operating income was primarily the result of
increased gross margin from higher product revenues in 2000. However, the
improvement in gross margin was offset by increased selling, general and
administrative expenses as noted above and by higher interest expense due to an
increase in the prime lending rate under the Company's Credit Facility.
Favorably affecting operating income was lower depreciation and amortization in
2000 as certain assets became fully depreciated.
Tax Provisions
The Company's current income tax provision represent state and local income
taxes as well as a federal income tax provision, In 1999, the alternative
minimum tax for Federal income purposes also applied. In addition, deferred
taxes were provided in 2000 and 1999 on income to be reported in future taxable
periods. During 2000, Firetector fully utilized the balance ($310,000) of its
net operating loss carry forwards, the accounting benefits of which was realized
in prior periods.
Order Position
Firetector's order position, excluding service, decreased to $7.8 million
at September 30, 2000 from $10.3 million at September 30, 1999 reflecting the
shipment in 2000 of significant orders received in 1999 from several major
subway complexes, a major transportation center, and an airport facility. While
quotation activity is brisk, there is no assurance when orders will be received
and whether the order position will increase. 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.
<PAGE>
Plan of Operations
During fiscal 2001, Management intends to continue to focus on its
intensified marketing programs that were begun in 1998 and to continue to
contain or monitor 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 customer) cost responsibility. Management will
also focus its efforts in 2001 to improve accounts receivable collections.
INFLATION
The impact of inflation on the Company's business operations has not been
material in the past. Casey's labor costs are normally controlled by union
contracts covering a period of two years and its material costs have remained
relatively stable. However in July of 1999, after a brief work stoppage
(strike), the Company and its union agreed to a new three year contract that
provides for wage increases of 5% in each year. During 2001, certain union
members, upon passing certain test requirements, will be moving up to higher
paying categories that have multiple salary steps per year in excess of the 5%
contractual level. In addition, the demand of highly skilled professionals has
resulted in the need to assess salary levels in order to remain competitive in
both Dallas, Texas and the New York City, New York metropolitan areas. It is
expected that required salary adjustments will exceed normal increases given in
the past. The Company will try to mitigate the effect of these increases in
labor costs by price increases, if possible, and expense reductions.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements required to be filed hereunder are
indexed at Page 11 and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Effective September 8, 2000 the Board of Directors elected to change independent
accountants. Accordingly, the public accounting firm of Moore Stephens, P.C. was
notified that the client-auditor relationship would not be renewed and the
public accounting firm of Marcum & Kliegman, LLP was engaged to audit the
Company's financial statements for the year 2000.
<PAGE>
PART III
Incorporated by reference to the Registrant's Definitive Proxy.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit Page No.
3.1 Certificate of Incorporation of the Company, as amended (Exhibit 3.1)(1)
3.2 By-Laws of the Company (2)
4.1 Specimen Common Stock Certificate (2)
10.1 Credit Agreement dated June 23, 1998 between Firetector Inc. as Borrower
and Citizens Business Credit Company as Lender (4)
10.2 Debt Matching Agreement dated as of September 30, 1998 between Firetector
Inc. and Mirtronics Inc. (4)
10.3 Amended Debt/Equity Agreement dated February 19, 1998 between Firetector
Inc. and Mirtronics Inc.(4)
10.4 1997 Non-Qualified Stock Option Plan (Exhibit 10.6)(3)
10.4 Employment Agreement, dated as of January 1, 1997 between Firetector Inc.
and John A. Poserina (Exhibit 10.10)(3)
10.5 Form of First Amendment to Credit Agreement dated October, 2000 between
Firetector Inc. as Borrower and Citizens Business Credit Company as Lender
10.6 Form of Lease dated February, 2000 between Casey Systems as Tenant and
First Industrial L.P. as Landlord (5)
22.1 Subsidiaries of the Registrant (Exhibit 22.1)(1)
27 Financial Data Schedule
- --------
(1) Reference is made to the correspondingly numbered Exhibit to Amendment No. 1
to the Company's Registration Statement on Form S-2, Registration No. 33-51472,
filed with the Commission on December 23, 1992, which is incorporated herein by
reference.
(2) Reference is made to the correspondingly numbered Exhibit to Amendment No. 1
to the Company's Registration Statement on Form S-1, Registration No. 22-26050,
filed with the Commission on January 23, 1989, which is incorporated herein by
reference.
(3) Reference is made to the correspondingly numbered Exhibit to the Company's
Annual Report on Form 10-KSB for the Fiscal Year Ended September 30, 1997, which
Exhibit is incorporated herein by reference.
(4) Reference is made to the correspondingly numbered Exhibit to the Company's
Annual Report on Form 10-KSB for the Fiscal Year Ended September 30, 1998, which
Exhibit is incorporated herein by reference.
(5) To be filed by amendment
(b) Reports on Form 8-K
On September 15, 2000, the Registrant filed a Current Report on Form 8-K
reporting on Item 4 Changes in Registrant's Certifying Accountant.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, hereunto duly authorized.
FIRETECTOR INC.
(Registrant)
By: /s/ Daniel S. Tamkin
Daniel S. Tamkin,
Chief Executive Officer and
Director
Dated: December 21, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/Daniel S. Tamkin Chairman, December 21, 2000
---------------------- Chief Executive Officer
Daniel S. Tamkin and Director
/s/Joseph Vitale President, Chief Operating
Officer and Director December 21, 2000
- ----------------------
Joseph Vitale
/s/John A. Poserina Vice President, December 21, 2000
Chief Financial Officer
- ---------------------- Treasurer, Secretary, and Director
John A. Poserina
/s/Henry Schnurbach Director December 21, 2000
- ----------------------
Henry Schnurbach
/s/Dennis P. McConnell Director December 21, 2000
- ----------------------
Dennis P. McConnell
<PAGE>
Index to Consolidated Financial Statements
Firetector Inc. and Subsidiaries
Item 7
Report of Independent Auditors ..........................................
Audited Consolidated Financial Statements
Consolidated Balance Sheet-September 30, 2000 ...........................
Consolidated Statements of Income
Years Ended September 30, 2000 and 1999 ................................
Consolidated Statements of Stockholders' Equity
Years Ended September 30, 2000 and 1999 ................................
Consolidated Statements of Cash Flows
Years Ended September 30, 2000 and 1999 ................................
Notes to Consolidated Financial Statements ..............................
<PAGE>
Independent Auditors Report
To the Stockholders and Board of Directors of
Firetector Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Firetector Inc.
and its subsidiaries as of September 30, 2000 and the related consolidated
statements of income, stockholders' equity, and cash flows for year then ended.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides 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, 2000 and the consolidated results of
their consolidated operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
November 28, 2000 MARCUM & KLIEGMAN LLP
New York, NY
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Firetector Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of Firetector Inc and its subsidiaries for
the year ended September 30, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Firetector Inc and its subsidiaries for the year ended September
30, 1999, in conformity with generally accepted accounting principles.
New York, NY
December 3, 1999
MOORE STEPHENS, P. C.
<PAGE>
Part I - FINANCIAL INFORMATION
FIRETECTOR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30,
2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 239,000
Accounts receivable, principally trade, less allowance
for doubtful accounts of $349,000 6,117,000
Inventories 2,337,000
Deferred taxes 243,000
Prepaid expenses and other current assets 127,000
-----------
TOTAL CURRENT ASSETS $9,063,000
-----------
PROPERTY, PLANT AND EQUIPMENT -at cost, less
accumulated depreciation of $1,004,000 342,000
OTHER ASSETS 174,000
DEFERRED TAXES 34,000
-----------
TOTAL ASSETS $9,613,000
===========
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30,
2000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to Mirtronics $ 243,000
Other notes payable - principally to related party 85,000
Accounts payable and accrued expenses 2,860,000
Unearned service revenue 375,000
Current portion of capital lease obligations 23,000
-----------
TOTAL CURRENT LIABILITIES 3,586,000
-----------
Note payable to bank 1,433,000
Notes payable - principally to related party,
less current portion 155,000
Capital lease obligations, less current portion 89,000
-----------
TOTAL LIABILITIES 5,263,000
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 2,000,000 shares authorized-
none issued and outstanding
Common stock, 10,000,000 shares authorized, $.001
par value; issued and outstanding 1,704,425 shares 2,000
Capital in excess of par 5,279,000
Deficit (931,000)
-----------
TOTAL STOCKHOLDERS' EQUITY 4,350,000
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,613,000
===========
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Year Ended September 30,
2000 1999
----------- -------------
<S> <C> <C>
Net sales $14,921,000 $12,795,000
Service revenue 4,166,000 4,097,000
------------ ------------
Total revenues 19,087,000 16,892,000
------------ ------------
Cost of sales 9,896,000 8,562,000
Cost of service 2,928,000 2,873,000
Selling, general and administrative 5,016,000 4,485,000
Interest expense 249,000 240,000
Depreciation and amortization expense 164,000 228,000
Other (income) - net -6,000
------------ ------------
18,253,000 16,382,000
------------ ------------
Income from operations before provision
for income taxes 834,000 510,000
Provision for income taxes:
Current 335,000 128,000
Deferred 25,000 72,000
------------ ------------
360,000 200,000
------------ ------------
Net Income $474,000 $310,000
============ ===========
Earnings Per Common Share
Basic Earnings Per Share $0.28 $0.20
Diluted Earnings Per Share $0.26 $0.18
===== =====
Weighted Average Number of Common Shares Outstanding 1,682,198 1,571,097
Weighted Average Number of Common and Potential Dilutive
Common Shares Outstanding 1,853,792 1,723,653
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000 and 1999
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS' PREFERRED STOCK COMMON STOCK
EQUITY SHARES AMOUNT SHARES AMOUNT
------------ ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $3,446,000 0 $0 1,571,097 $2,000
Net Income $310,000
----------- -------- --------- ----------- --------
Balance at September 30, 1999 $3,756,000 0 0 1,571,097 $2,000
----------- -------- --------- ----------- --------
Issuance of shares from exercise
of options 120,000 133,333 0
Net Income 474,000
----------- -------- --------- ----------- --------
Balance at September 30, 2000 $4,350,000 0 $0 1,704,430 $2,000
=========== ======== ========= =========== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000 and 1999
CAPITAL
IN EXCESS
OF PAR DEFICIT
----------- -------------
Balance at September 30, 1998 $5,159,000 $(1,715,000)
Net Income $310,000
------------ -------------
Balance at September 30, 1999 $5,159,000 $(1,405,000)
------------ -------------
Issuance of shares from exercise
of options 120,000
Net Income 474,000
------------ ------------
Balance at September 30, 2000 $5,279,000 $(931,000)
============ ============
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended September 30,
2000 1999
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $474,000 $310,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 163,000 228,000
Provision for doubtful accounts 128,000 72,000
Changes in operating assets and liabilities:
Accounts receivable (712,000) (736,000)
Inventories, prepaid expenses and other current assets (34,000) (388,000)
Deferred taxes 25,000 72,000
Other assets 1,000 17,000
Accounts payable and accrued expenses 732,000 390,000
Unearned service revenue 33,000 -1,000
Due to affiliated companies (189,000) 39,000
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 621,000 3,000
------------ -----------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (97,000) (62,000)
------------ -----------
NET CASH (USED IN) INVESTING ACTIVITIES (97,000) (62,000)
------------ -----------
FINANCING ACTIVITIES
Proceeds from exercise of stock options 120,000
Principal payments on revolving line of credit,
long-term debt, notes payable and capital lease
obligations (719,000) (105,000)
Proceeds from revolving line of credit, notes payable
and capital lease obligations 80,000 292,000
------------ -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (519,000) 187,000
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,000 128,000
Cash and cash equivalents at beginning of period 234,000 105,000
------------ -----------
Cash and cash equivalents at end of period $239,000 $233,000
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $67,000 $73,000
Interest $234,000 $192,000
</TABLE>
<PAGE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the years ended September 30, 2000 and 1999, the Company incurred capital
lease obilgations of $94,000 and $26,000 respectively , for the acquisition of
equipment.
See accompanying Notes to the Consolidated Financial Statements
<PAGE>
Firetector Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2000
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, 2000, 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"), Systems Service Technology
Corp. ("SST") and Amco Maintenance Corporation ("AMCO"). Effective October 1,
1999, the operations of Pyrotech Service Inc. and Amco Maintenance Corporation
became part of the operation of Systems Service Technology and these two
companies became inactive. 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>
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 in the formation of certain subsidiaries. The excess of
cost over the fair value of the assets acquired approximates $117,000 (net of
accumulated amortization of $57,000) and relates principally to the 1990
acquisition of GenSound. This amount is being amortized over forty years under
the straight line method.
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>
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
SFAS No. 128 "Earnings Per Share" requires companies to report basic and diluted
earnings per share ("EPS") computations. 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 EPS and Weighted Average Shares
Outstanding reflect 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 85% of such
outstanding receivables at September 30, 2000 are due from customers in New
York.
At September 30, 2000, the Company had approximately $150,000 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.
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 9).
2. Transactions with Related Parties
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 had granted Mirtronics options to acquire 613,333 shares
of common stock and had issued Series 1 Convertible Preferred Stock in exchange
for debt. The preferred stock was convertible into 450,000 shares of common
stock.
In February 1998, the Company and Mirtronics agreed to reorganize the options,
convertible debt and convertible preferred stock (so as to reduce the potential
dilution of these securities by 366,667 shares of common stock). In September
1998, the Company and Mirtronics entered into a Debt Matching agreement to
offset an aggregate of $508,619 of obligations with each other and for
Mirtronics to surrender the conversion option on one of the Notes for 413,333
shares of common stock for a new warrant for 310,000 shares of common stock.
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 Gentura Capital Corporation, an Ontario Corporation,
("GCC") 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. In December 1999, GCC exercised the outstanding
balance of these options for $120,000 and the Company reduced its note payable
to Mirtronics for a like amount. An officer of GCC is also a director of
Mirtronics (See Note 9).
Notes Payable Principally to Related Party includes $156,000 due to a former
officer/director of the Company under a seven year installment promissory note
dated January 1, 1997 that bears interest at 4% per annum.
3. Property, Plant and Equipment
Property and equipment (including those arising from capital leases) are
summarized as follows:
September 30,
2000
---------------
Machinery and equipment $1,200,000
Furniture and fixtures 130,000
Leasehold improvements 16,000
---------------
1,346,000
Less accumulated depreciation and amortization
1,004,000
---------------
$342,000
===============
Annual amortization of equipment under capital leases is included with
depreciation and amortization expense.
Depreciation expense was $127,000 and $173,000 for the years ended September 30,
2000 and 1999, respectively.
4. Long-Term Debt
In 1998, the Company entered into a revolving credit facility with Citizens
Business Credit Company of Boston, Mass (the "Credit Facility"). The credit
facility was revised in September 2000 and provides for a $3,000,000 revolving
line of credit through December 2004 and carries an interest rate of prime plus
3/4% on outstanding balances (10.25% at September 30, 2000). The Credit facility
limits capital expenditures to $250,000 in each year. At September 30, 2000
$1,433,000 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.
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, 2000, the Company was not in default of any of its
financial covenants.
Annual maturities of Loans and Notes Payable are as follows:
Bank Other Notes
Loan Payable
------------ ------------
2001 $328,000
2002 77,000
2003 62,000
2004 16,000
2005 $1,433,000
----------- ------------
Total $1,433,000 $483,000
=========== ============
At September 30, 2000, the notes payable to Mirtronics totaled $243,000. 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 (See Note
2).
5. Leases
The Company leases certain office and warehouse space under noncancelable
operating leases expiring at various times through 2007. In February 2000, the
Company signed a new lease for office, manufacturing and warehouse space in
Syosset, New York. This lease expires in June 2007. In September 2000, the
Company also entered into a new lease for its service center in New York City.
This lease expires in August 2003. However, either party may terminate the lease
with six months notice. The Company also leases certain office equipment and
vehicles under noncancelable capital and operating leases expiring in various
years through fiscal 2005.
The following is a schedule of future minimum payments, by year and in the
aggregate, under non cancelable capital and operating leases with initial or
remaining terms of one year or more at September 30, 2000:
Capital Leases Operating Leases
-------------- ---------------
2001 $35,000 $355,000
2002 31,000 353,000
2003 31,000 326,000
2004 26,000 180,000
2005 21,000 186,000
2006 192,000
2007 148,000
------------ -------------
Total minimum lease payments 144,000 $1,740,000
=============
Less amount representing interest 33,000
------------
Present value of net minimum
lease payments (including current
portion of $23,000) $111,000
============
Rental expense amounted to $307,000 and $258,000 for 2000 and 1999,
respectively.
6. Significant Customers
During fiscal 2000 and 1999, no customer accounted for more than 10% of sales.
7. Income Taxes
During the year ended September 30, 2000, the Company recorded a tax provision
of $360,000 compared to $200,000 for the year ended September 30, 1999. A
reconciliation of such with the amounts computed by applying the statutory
federal income tax rate is follows:
Year ended September 30,
2000 1999
-----------------------
Statutory federal income tax rate 34% 34%
Computed expected tax from income $284,000 $173,000
Increase in taxes resulting from:
State and local income taxes, net of Federal
tax benefit 97,000 77,000
Nondeductible expenses 8,000 8,000
Alternative minimum tax 11,000
(Decrease) in taxes resulting from
benefit of future tax deductible items (29,000) (69,000)
---------- --------
Provision $360,000 $200,000
========== ========
The Company provided $13,000 and $32,000 for state and local franchise and
capital taxes for the years ended September 30, 2000 and 1999, respectively.
These expenses have been included in selling, general and administrative
expenses for each of the years presented.
During 2000, the Company completely used up the remaining $310,000 of net
operating loses that were carried over from prior periods, the benefit of which
was recognized in prior years.
The Company has recorded a deferred tax asset of approximately $277,000 at
September 30, 2000 related to certain book provisions to be deducted in future
tax returns. Management anticipates profitable operations to continue at a level
that will result in the utilization of the entire deferred tax asset.
<PAGE>
8. Earnings Per Share
Shown below is a table that presents for 2000 and 1999 the computation of basic
earnings per share, diluted earnings per share, weighted shares outstanding, and
weighted average shares after potential dilution.
Year Ended
Basic EPS Computation 2000 1999
Net Income available to common
shareholders $474,000 $310,000
Weighted average outstanding shares 1,682,198 1,571,097
Basic EPS $.28 $.20
===== =====
Diluted EPS Computation
--------------------------------------------
Income available to common
shareholders $474,000 $310,000
Diluted net income 474,000 $310,000
Weighted-average shares 1,682,198 1,571,097
Plus: Incremental shares from
assumed conversions
Non Employee Stock Options 10,242 49,855
Employee Stock Options 40,693 21,831
Warrants* 120,659 80,870
--------- ---------
Dilutive potential common shares 171,594 152,556
--------- ---------
Adjusted weighted-average shares 1,853,792 1,723,653
Diluted EPS $.26 $.18
========= =========
*Warrants convertible into 16,667 and 33,334 shares were antidilutive in the
years ended September 30, 2000 and 1999, respectively.
9. 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 intrinsic value base method of accounting for options
issued to employees rather than the fair value based method of accounting. No
options were issued during 2000. 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 for 1999 would be reduced to the
pro forma amounts indicated below:
2000 1999
Net Income:
As reported $474,000 $310,000
Pro forma 474,000 294,000
Fully diluted earnings per common share:
As reported $0.26 $0.18
Pro forma 0.26 0.17
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 1999 : dividend yield of zero;
expected volatility of 85% and expected life of 4 years. The weighted average
risk fee interest rates for 1999 were 5.40%. The weighted average fair value of
options granted during 1999, for which the exercise price equaled the market
price on the grant dates, was $1.125. The option price for all employee stock
options outstanding prior to fiscal 1999 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 management's'
opinion, the existing models do not necessarily provide a reliable 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 September 30, 1998 72,958 1.00
Options granted 35,000 1.13
Balance September 30, 1999 107,958 1.04
Balance September 30, 2000 107,958 1.04
There were 75,402 exercisable options at September 30, 2000 and 54,136
exercisable options at September 30, 1999.
.
The following table summarizes information concerning currently outstanding and
exercisable stock options.
Outstanding at Weighted Average Exercisable at
Exercise Price September 30, 2000 Contractual Life September 30, 2000
$1.00 27,250 .5 years 27,250
1.00 16,125 .5 years 16,125
1.00 4,500 1.3 years 3,375
1.00 25,083 2.0 years 18,812
1.13 35,000 4.0 years 8,750
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. Options for 33,334
shares were exercised in July 1996 and options for 133,333 were exercised in
December 1999 (also see Note 2 - Transactions with Related Parties).
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 and expire in April 2002. The remaining 16,667 options
expired in May 2000. 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 September 30, 1998 486,667 $1.17
Balance September 30, 1999 486,667 1.17
Balance September 30, 2000 326,667 $1.20
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, 2000 Contractual Life September 30, 2000
$4.50 16,667 1.5 years 16,667
$1.02 310,000 3.3 years 310,000
10. 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.
11. Other
Approximately 35% of the Company's employees are covered by collective
bargaining agreements. The present contract expires in June 2002.
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 2000 and 1999 a profit sharing
contribution of $44,000 and $28,000, respectively, was charged to expense.
12. 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.
13. Authoritative Pronouncements
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, 2000. 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 requirements
do not have a material impact on the Company's results of operations, financial
position, or cash flows.
