<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, 1999
-------------------------
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 11, 2000,
1,704,000 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, 1999 4
Consolidated Statements of Income for the Three Month 6
Periods Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the Three 7
Month Periods Ended December 31, 1999 and 1998
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,
1999
----------------
ASSETS
Current assets:
Cash and cash equivalents $ 280,719
Accounts receivable, principally
trade, less allowance for
doubtful accounts of $239,341 4,807,492
Inventories 2,257,805
Deferred taxes 316,000
Prepaid expenses and other current assets 189,062
-------------
TOTAL CURRENT ASSETS 7,851,078
-------------
Property, Plant and Equipment at cost, less
accumulated depreciation and
amortization of $1,005,387 275,103
Other Assets 244,527
Deferred Taxes 40,000
-------------
Total assets $8,410,708
=============
See accompanying Notes to the Consolidated Financial Statements.
4
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
Unaudited
December 31,
1999
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to Mirtronics $ 179,296
Other notes payable-principally to related party 70,082
Accounts payable and accrued expenses 1,816,780
Unearned service revenue 343,585
Current portion of capital lease obligations 10,163
------------
TOTAL CURRENT LIABILITIES 2,419,906
Note payable to bank 2,032,795
Other notes payable, principally to related
party less current portion 177,941
Capital lease obligations, less current portion 18,964
------------
TOTAL LIABILITIES 4,649,606
------------
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 1,704
Capital in excess of par 5,278,490
Deficit (1,519,092)
-----------
TOTAL STOCKHOLDERS' EQUITY 3,761,102
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,410,708
===========
See accompanying Notes to the Consolidated Financial Statements.
5
<PAGE>
Firetector Inc. and Subsidiaries
Consolidated Statements of Income
(unaudited)
For The Three Months Ended
December 31,
1999 1998
----------- ----------
Net sales $2,815,969 $2,559,069
Service revenues 1,002,372 1,001,247
----------- ----------
Total revenues 3,818,341 3,560,316
----------- ----------
Cost of sales 2,183,297 1,614,488
Cost of service 648,771 675,477
Selling, general and administrative 1,086,331 1,016,790
Interest expense 62,404 51,271
Depreciation and amortization expense 52,338 51,804
----------- ----------
4,033,141 3,409,830
----------- ----------
Income (Loss) from operations before
provision for income taxes (214,800) 150,486
Provision for (recovery of) income taxes:
Current (46,000) 15,000
Deferred (54,000) 35,000
---------- ----------
(100,000) 50,000
---------- ----------
Net income (Loss) $(114,800) $ 100,486
========= ==========
Earnings per common share
Basic earnings (Loss) per share $ (0.07) $ 0.06
Diluted earnings (Loss) per share $ (0.06) $ 0.06
========= ==========
Weighted average number of common
shares outstanding 1,615,492 1,571,097
Weighted average number of common
and potential dilutive
common shares outstanding 1,782,651 1,913,790
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,
1999 1998
--------- ---------
OPERATING ACTIVITIES
Net income (114,800) $100,486
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 52,338 51,804
Provision for doubtful accounts 18,000 18,000
Changes in operating assets and liabilities:
Accounts receivable 707,388 266,146
Inventories, prepaid expenses and other
current assets (16,719) (243,026)
Deferred taxes (54,000)
Other assets (64,415) 37,823
Accounts payable and accrued expenses (310,713) (34,935)
Unearned service revenue 1,483 (67,024)
Due to affiliated companies (132,974)
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 85,588 129,274
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (18,165) (17,995)
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (18,165) (17,995)
--------- ---------
FINANCING ACTIVITIES
Principal payments on revolving line of
credit, long term debt, notes payable
and capital lease obligations (41,003) (207,228)
Proceeds from revolving line of credit,
notes payable and capital
lease obligations 21,009 9,824
--------- ---------
NET CASH (USED IN)FINANCING ACTIVITIES (19,994) (197,404)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 47,429 (86,125)
Cash and cash equivalents at beginning
of period 233,290 104,914
--------- ---------
Cash and cash equivalents at end of period 280,719 $ 18,789
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes 3,935 23,906
Interest 56,493 41,448
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the quarter ended December 31, 1999 there were no caopital leases
incurred and during the quarter ended December 31, 1998, the Company incurred
capital lease obligations of $26,400 respectively, for the acquisition of
equipment.
In the quarter ended December 31, 1999, Genterra Investment Corp. exercised
133,333 options to purchase common stock at $.90 per share. This amounted to
$120,000 and was used to reduce Notes Payable to Mirtronics by a like amount.
(See Note 4 - Transactions With Related Parties).
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, 1999
(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, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year ending
September 30, 2000. 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, 1999.
2. INVENTORY
Inventories are priced at the lower of cost (firstin, firstout) 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, 1999 $2,032,795 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. A $300,000 letter of credit previously provided by Mirtronics
Inc., the Company's largest stockholder, an Ontario corporation ("Mirtronics"),
as additional collateral was released by the lender in January 2000 based on the
terms of the Credit Facility.
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, 1999, the Company was not in default of any of its
covenants.
4. NOTE PAYABLE TO MIRTRONICS
At December 31, 1999, the note payable to Mirtronics totaled $179,296. While
this note is payable on demand, it is subordinate to and subject to a payment
restriction under the Company's Credit Facility with it's bank. Also see Note 5
- - Transactions with Related Parties.
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED DECEMBER 31, 1999
(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. 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. As a result of principal and interest payments made this obligation
was reduced to $179,296 as of December 31, 1999. 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 Investment Corporation, an Ontario
Corporation, ("GIC") options for 166,667 unregistered shares of the Company's
common stock at $.90 per share through December 31, 1999. In July 1996, GIC
exercised 33,334 of these options at $.90 per share. In December 1999, GIC
exercised the remaining 133,333 options at $.90 per share. An officer of GIC is
also a director of Mirtronics.
<PAGE>
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
5. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
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.
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.
For the Three Months ended December 31,
---------------------------------------
Basic EPS Computation 1999 1998
---- ----
Net (Loss) Income available to
common shareholders $(114,800) $100,486
Weighted average outstanding shares 1,615,492 1,571,097
Basic EPS (Loss) $(.07) $.06
========== ==========
Diluted EPS Computation For the Three Months Ended December 31,
---------------------------------------
1999 1998
---- ----
(Loss) Income available to common
stockholders and assumed conversions $(114,800) $107,363
---------- ---------
Weighted-average shares 1,615,492 1,571,097
--------- ---------
Plus: Incremental shares from assumed
conversions
Non Employee Stock Option 135,102 26,061
Convertible debt 310,000
Employee Stock Options* 32,057 6,633
Warrants* ----------- -----------
Dilutive potential common shares 167,159 342,694
----------- -----------
Adjusted weighted-average shares 1,782,651 1,913,790
Diluted EPS $(.06) $.06
========== =============
*Warrants and employee stock options convertible into 33,334 shares were
antidilutive for the three month periods ended December 31, 1999 and 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Unaudited)
Liquidity and Capital Resources
The Company has 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 had 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. The
Company owed $2,032,795 under the Credit Facility at December 31, 1999.
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, 1999, the Company was not in default with any of its financial
covenants.
Net cash provided by operations for the three months ended December 31, 1999
amounted to $85,588 as compared to $129,274 for the comparable prior year
period. The primary reason for the decrease in cash provided by operations was
due to a reduction of amounts due to affiliated companies. In addition, a
reduction of over $700,000 in trade receivables was primarily used to reduce
accounts payable and accrued expenses by $310,000.
The ratio of the Company's current assets to current liabilities increased to
approximately 3.24 to 1 at December 31, 1999 from 2.83 to 1 at December 31, 1998
due to a $569,000 reduction of current liabilities primarily related to reducing
accounts payable and accrued expenses..
Results of Operations
Revenues
The Company's product revenues during the three months ended December 31, 1999
were $2,815,969 as compared to $2,559,069 for the prior year period. However,
this increase primarily resulted from a large audio project at a museum where
the Company acts as a prime contractor, a substantial portion of which billing
related to subcontractor labor and material with minimal gross margin. Product
revenues, exclusive of subcontractor work, declined due to the timing of the
release of work to the Company and from a decrease in revenues from end user
additions and alterations which normally carry high gross margins. The 1999
quarterly period also included shipment of a large communication system to a
rail car manufacturer that carried a very low gross margin due to the
introduction of a new product and cost overruns due to technical problems.
Service revenues increased slightly during the current three month period to
$1,002,372 from $1,001,249 in the comparable prior year period. The increase
reflects higher call-in maintenance service on fire systems.
<PAGE>
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Unaudited)
Gross Profit
Gross profit on product revenues for the three months ended December 31, 1999
decreased 36% to $632,672 as compared to $944,581 in the comparable year period.
This decrease is due to a change in the mix of products sold during the three
months ended December 31, 1999. This change in product mix included the effect
of $400,000 of subcontractor work with minimal gross margin, shipment of low
margin rail car product as noted above, and a significant decline in higher
margin end user alteration work.
Gross profit on service revenues for the three months ended December 31, 1999
increased 8% to $353,601 due to the increase in call-in service revenue and
from certain workforce reductions.
Income Before Tax
The loss from operating activities for the three months ended December 31, 1999
was $214,800 as compared with income from operations of $150,486 for the
comparable 1998 period. This decrease in operating income was anticipated in
part by the Company's operating plan. However, the operating loss was greater
than anticipated and was primarily attributed to the change in product mix in
1999 brought about by an abnormally high percent of subcontractor work at lower
margins, a large shipment of new product to a rail car manufacturer at a low
gross margin due to the introduction of a new product and cost overruns due to
technical problems, and reduced end user alteration work that carries a higher
gross margin. Operating income was also effected by a 7% increase in selling,
general and administrative expenses. During the past two years, the Company has
intensified its marketing efforts and expanded its product territory. This
effort has resulted in the Company experiencing higher revenue and an
improvement in new order bookings and quotation activity (see new order
information below). The new marketing and support structure that is in place can
support a higher level of revenue.
Tax Provision
The Company's current income tax (benefit) provision represents state and local
income taxes and the alternative minimum tax for Federal income purposes. In
addition a deferred tax (benefit) or provision was provided due to an (increase)
or reduction in the Company's deferred tax asset. Firetector retains
approximately $440,000 of additional net operating loss carry forwards, the
accounting benefits of which have been realized in prior periods.
Order Position
The Company's order position, excluding service, at December 31, 1999 amounted
to $10,700,000 as compared to $10,300,000 at September 30, 1999 and $9,300,000
at December 31, 1998. The high level of order position reflects in part the
Company's recent intensified marketing efforts. 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. The order position
at December 31, 1999 does not have a mix of subcontractor work as significant as
that experienced in the first quarter of fiscal 2000.
<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
b. Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended December 31, 1999.
<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)
/S/JOHN A. POSERINA
-------------------
John A. Poserina,
Chief Financial Officer, Secretary
And Director
Date: February 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from this
Consolidated Statement of Financial Condition at December 31, 1999 (Unaudited)
and the Consolidated Statement of Income for the Three Months Ended December 31,
1999 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 280,719
<SECURITIES> 0
<RECEIVABLES> 4,807,492
<ALLOWANCES> 239,341
<INVENTORY> 2,257,805
<CURRENT-ASSETS> 7,851,078
<PP&E> 1,280,490
<DEPRECIATION> 1,005,387
<TOTAL-ASSETS> 8,410,708
<CURRENT-LIABILITIES> 2,419,906
<BONDS> 0
<COMMON> 1,704
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,410,708
<SALES> 3,818,341
<TOTAL-REVENUES> 3,818,341
<CGS> 2,832,068
<TOTAL-COSTS> 4,033,141
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,404
<INCOME-PRETAX> (214,800)
<INCOME-TAX> 100,000
<INCOME-CONTINUING> (114,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114,800)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.06)
</TABLE>
