U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal quarter ended___________March 31, 2002_______________________
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number________________0-17580__________________________
FIRETECTOR INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 11-2941299
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(State or jurisdiction of (IRS employer identification Number)
incorporation or organization)
209 Lafayette Drive, Syosset, New York 11791
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(Address of Principal Executive Offices) (Zip code)
(516) 433-4700
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(Issuer's telephone number)
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 May 11, 2002, 1,704,425 shares
of Registrant's Common Stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one) Yes[ ] No[ X ]
INDEX
Part I - Financial Information (unaudited) Page
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet as at March 31, 2002 3
Condensed Consolidated Statements of Operations for the Three Month
Periods Ended March 31, 2002 and 2001 5
ondensed Consolidated Statements of Operations for the Six Month
Periods Ended March 31, 2002 and 2001 6
Condensed Consolidated Statements of Cash Flows for the Six Month
Periods Ended March 31, 2002 and 2001 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
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 Holders. 13
Item 5. Other Information. 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
Part I - FINANCIAL INFORMATION
FIRETECTOR INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31,
2002
------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 224,328
Accounts receivable, principally trade, less allowance
for doubtful accounts of $335,783 5,234,460
Inventories 2,541,762
Deferred taxes 321,000
Prepaid expenses and other current assets 601,018
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TOTAL CURRENT ASSETS 8,922,568
PROPERTY AND EQUIPMENT -at cost, less
accumulated depreciation and amortization
of $1,187,070 343,700
OTHER ASSETS 165,764
DEFERRED TAXES 65,000
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TOTAL ASSETS 9,497,032
=============
See accompanying Notes to the Condensed Consolidated Financial Statements
FIRETECTOR INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31,
2002
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Other notes payable - principally to related party 88,224
Accounts payable and accrued expenses 2,734,059
Deferred revenue 499,554
Current portion of capital lease obligations 23,117
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TOTAL CURRENT LIABILITIES 3,344,954
Note payable to bank 1,647,381
Notes payable - principally to related party, less
current portion 67,398
Capital lease obligations, less current portion 55,319
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TOTAL LIABILITIES 5,115,052
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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 1,704
Capital in excess of par 5,278,490
Accumulated Deficit (898,214)
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TOTAL STOCKHOLDERS' EQUITY 4,381,980
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 9,497,032
=============
See accompanying Notes to the Condensed Consolidated Financial Statements
FIRETECTOR INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six Months Ended March 31,
2002 2001
----------- -------------
Product sales 4,283,034 6,036,190
Subcontract sales 635,402 382,586
Service revenue 2,269,132 2,161,201
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Total revenues 7,187,568 8,579,977
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Cost of product sales 3,023,742 3,996,437
Cost of subcontract sales 518,391 302,391
Cost of service 1,626,247 1,467,763
Selling, general and administrative 2,553,875 2,424,294
Interest expense 48,888 84,767
Depreciation and amortization expense 87,012 88,549
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7,858,155 8,364,201
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(Loss) Income from operations before
(benefit from) provision for income taxes (670,587) 215,776
(Benefit from) Provision for income taxes:
Current (195,000) 120,000
Deferred (75,000) (26,000)
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(270,000) 94,000
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Net (Loss) Income (400,587) 121,776
============= ============
Earnings Per Common Share
Basic (Loss) Earnings Per Share $(.24) $.07
Diluted (Loss) Earnings Per Share $(.24) $.07
===== =====
Weighted Average Number of Common Shares Outstanding 1,704,425 1,704,425
Weighted Average Number of Common and Potential Dilutive
Common Shares Outstanding 1,704,425 1,776,389
See accompanying Notes to the Condensed Consolidated Financial Statements
FIRETECTOR INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
2002 2001
----------- -----------
Product sales 2,095,118 3,373,631
Subcontract sales 400,979 161,916
Service revenue 1,152,740 1,098,337
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Total revenues 3,648,837 4,633,884
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Cost of product sales 1,299,996 2,252,376
Cost of subcontract sales 331,578 134,426
Cost of service 825,042 753,685
Selling, general and administrative 1,321,101 1,280,368
Interest expense 25,970 43,872
Depreciation and amortization expense 44,142 45,143
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3,847,829 4,509,870
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(Loss) Income from operations before (benefit from) provision
for income taxes (198,992) 124,014
(Benefit from) provision for income taxes:
Current (51,000) 76,000
Deferred (28,000) (12,000)
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(79,000) 64,000
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Net (Loss) Income (119,992) 60,014
============ ===========
Earnings per common share
Basic (loss) earnings per share $(.07) $.04
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Diluted (loss) earnings per share $(.07) $.03
===== =====
Weighted average number of common shares outstanding 1,704,425 1,704,425
Weighted average number of common and potential dilutive
common shares outstanding 1,704,425 1,813,727
See accompanying Notes to the Condensed Consolidated Financial Statements
FIRETECTOR INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended March 31,
2002 2001
-------------------------------------
OPERATING ACTIVITIES
Net (loss) income (400,587) 121,776
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 87,012 88,549
Deferred tax benefit (75,000) (26,000)
Provision for doubtful accounts 7,898 17,000
Changes in operating assets and liabilities:
Accounts receivable 1,214,905 1,254,440
Inventories, prepaid expenses and other current assets (613,697) (429,203)
Other assets (7,492) (16,207)
Accounts payable and accrued expenses (572,126) (644,944)
Deferred revenue 45,655 22,071
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (313,432) 387,482
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INVESTING ACTIVITIES
Purchases of property and equipment (36,479) (130,437)
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NET CASH (USED IN) INVESTING ACTIVITIES (36,479) (130,437)
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FINANCING ACTIVITIES
Principal payments on revolving line of credit, long-term
debt, notes payable and capital lease obligations (92,620) (104,013)
Proceeds from revolving line of credit, notes payable
and capital lease obligations 368,439 21,463
Notes payable to affiliated companies 0 (250,017)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 275,819 (332,567)
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (74,092) (75,522)
Cash and cash equivalents at beginning of period 298,420 238,678
------------ -----------
Cash and cash equivalents at end of period 224,328 163,156
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes 150,154 375,109
Interest 48,887 77,946
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended March 31, 2002 and 2001, the Company incurred no
capital lease obilgations for the acquisition of equipment.
See accompanying Notes to the Condensed Consolidated Financial Statements
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 2002
(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 in order to make the financial statements not
misleading have been included. Results for the three and six months ended March
31, 2002 are not necessarily indicative of the results that may be expected for
the fiscal year ending September 30, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in Firetector
Inc. ("the Company") and Subsidiaries' annual report on Form 10-KSB for the year
ended September 30, 2001.
2. REVENUE RECOGNITION
Product revenues include sale of systems, which are similar in nature, that
involve fire alarm, life safety and security (CCTV and card access), transit (on
board systems) and communication (paging, announcement and audio/visual).
Product sales represent sales of product along with the integration of technical
services at a fixed price under a contract with an electrical contractor or end
user customer (building owner or tenant), or customer agent. Product revenue is
allocated using a constant gross profit percentage over the entire contract, and
recognized, using the percentage-of-completion method of accounting. The Company
utilizes a units-of-work performed method to measure progress towards completion
of the contract. The effects of changes in contract terms are reflected in the
accounting period in which they become known. Contract terms provide for billing
schedules that differ from revenue recognition and give rise to costs and
estimated profits in excess billings, and billings in excess of costs and
estimated profits.
Subcontract revenues principally represents revenues related to electrical
installation of wiring and piping performed by others for the Company when the
Company acts as the prime contractor and sells its products along with
electrical installation. Subcontract revenue is also recognized during the
entire project using the percentage-of-completion method of accounting as
electrical installation is performed at the job site.
Service revenue from separate 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.
3. INVENTORY
Inventories are priced at the lower of cost (first-in, first-out) or market and
consist primarily of raw materials.
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
SIX MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
4. LONG TERM DEBT
The Company has a revolving Credit Facility with Citizens Business Credit
Company of Boston, Massachussetts, (the "Credit Facility"). The credit facility
provides for a $3,000,000 revolving line of credit which expires in December
2004. The Credit Facility provides for interest at prime rate (4.75% at March
31, 2002) plus 1/4% on outstanding balances. At March 31, 2002 $1,647,381 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 expenditures. The Company is also required to maintain certain financial
ratios. Citizens Business Credit Company of Boston has modified the requirement
of one of the ratios for the balance of fiscal 2002. At March 31, 2002, the
Company was not in default of any of its covenants as a result of this
modification.
FIRETECTOR INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
SIX MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
5. EARNINGS (LOSS) 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. 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 and warrants.
Three Months ended March 31, Six Months ended March 31,
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Basic EPS Computation 2002 2001 2002 2001
---------- ----------- ---------- ----------
Net (Loss) Income available to common
stockholders $(119,992) $ 60,014 $(400,587) $121,776
Weighted average outstanding shares 1,704,425 1,704,425 1,704,425 1,704,425
Basic EPS (Loss) $(.07) $.04 $(.24) $.07
====== ====== ====== ====
Diluted EPS Computation Three Months ended March 31, Six Months ended March 31,
---------------------------- ----------------------------
2002 2001 2002 2001
---------- --------- ---------- ---------
Net (Loss) Income available to common
stockholders $(119,992) $ 60,014 $(400,587) $121,776
========== ======== ========== ========
Weighted-average shares 1,704,425 1,704,425 1,704,425 1,704,425
--------- --------- ---------- ---------
Plus: Incremental shares from
assumed conversions
Employee Stock Options 26,784 16,964
Warrants* 82,518 55,000
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Dilutive potential common shares N/A 109,302 N/A 71,964
--- ------- --- ------
Adjusted weighted-average shares 1,704,425 1,813,727 1,704,425 1,776,389
--------- --------- --------- ---------
Diluted EPS (Loss) $(.07) $.03 $(.24) $.07
====== ==== ====== ====
All Warrants and Options were antidilutive for the three and six month period
ended March 31, 2002 and therefore not included in the above calculation.
Warrants convertible into 16,667 shares, which were antidilutive in the three
and six month period ended March 31, 2001 and therefore not included in the
above calculation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Company has a $3 million credit facility with Citizens Business Credit
Company of Boston, (the "Credit Facility") that expires in December, 2004. The
Credit Facility has an interest rate of prime plus 1/4% 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 $1,647,381 under the Credit Facility at March 31, 2002.
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.
Citizens Business Credit has modified the requirements for one of these ratios
for the balance of fiscal 2002. At March 31, 2002, the Company was not in
default with any of its financial covenants as a result of this modification.
Net cash (used) by operations for the six months ended March 31, 2002 amounted
to $313,432 as compared to cash being provided by operations of $387,482 for the
comparable prior year period. The primary reason for cash being (used) by
operations was due to a decrease of $886,363 in operating profit before taxes.
Contributing to cash being (used) by operations for the six months ended March
31, 2002 was a $250,968 increase in inventories caused by purchases for certain
projects that do not call for immediate shipment. The resulting cash outflow for
the six month period in 2002 required the Company to increase its borrowing
under the Credit Facility by $337,710.
The ratio of the Company's current assets to current liabilities decreased to
approximately 2.67 to 1 at March 31, 2002 compared to 3.01 to 1 at March 31,
2001. This decrease in the current ratio is due to a $57,000 reduction in
working capital, which was caused by the need to fund the operating loss during
the six months ended March 31, 2002.
Results of Operations
Revenues and Gross Profit
Three Months Ended Six Months Ended
------------------ -----------------
March 31, March 31,
--------- ---------
2002 2001 2002 2001
---- ---- ---- ----
(In thousands of dollars)
Product Revenue $2,095 $3,374 $4,284 $6,037
Subcontract Revenue 401 162 635 382
Service Revenue 1,153 1,098 2,269 2,161
Total Revenue 3,649 4,634 7,188 8,580
Gross Profit Product 795 1,122 1,259 2,040
Gross Profit Subcontract 69 27 117 80
Gross Profit Service 328 345 643 693
Total Gross Profit 1,192 1,494 2,019 2,813
Gross Profit Product % 38% 33% 29% 34%
Gross Profit Subcontract % 17% 17% 18% 21%
Gross Profit Service % 28% 31% 28% 32%
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Revenues
The Company's product revenues during the three and six months ended March 31,
2002 decreased from the comparable prior year periods, representing decreases of
38% and 29% for the respective periods. These decreases in product revenues
resulted from a general slowdown in economic activity in the Company's principal
markets, New York City and Dallas. In addition, the events of September 11th
delayed work on several projects involving New York City Transit Authority and
reduced tenant revenue as tenants relocated out of New York City, consolidated
into existing space uptown or moved into space in "move in" condition that had
been abandoned or offered for sublease.
Subcontract revenue increased during the current three and six month periods as
the Company was responsible for electrical installation on several large fire
alarm projects in 2002.
Service revenues increased during the current three and six month periods. The
increase reflects higher call-in maintenance service material on fire systems as
replacement parts were needed in certain buildings affected by contamination
from the events of September 11th.
Gross Profit
Gross profit on product revenues for the three months and six months ended March
31, 2002, decreased 29% and 38% for the respective prior year periods. The
decrease in absolute gross profit during both periods is primarily related to
lower sales (noted above) and related gross margin caused in part by the events
of September 11th and from the slowdown in economic activity. However, the
increase in gross profit percentage during the current three month period
reflects a lower material component on project activity during the period. The
decrease in gross profit percentage in the current six month period is due to
certain labor cost overruns on several large projects and greater material
component on products sold. In addition, during the six month period of 2002,
certain fixed overhead costs increased approximately $100,000 (2% decrease in
gross profit percentage) principally from wage increases. In contrast, during
the 2001 six month period, gross profit includes the revenue benefit from a
non-recurring engineering and product management contract (professional service
with no material content).
Gross profit related to subcontract revenues for the three and six months ended
March 31, 2002 increased in absolute terms as the Company was responsible for
electrical installation on two large fire alarm projects in 2002. However, the
gross profit percentage was lower during 2002 as one project was contracted for
sale at a lower than normal mark up.
Gross profit on service revenues for the three and six months ended March 31,
2002 decreased in spite of the increase in service revenues. The decline in
gross profit from service was due to certain wage increases to service
technicians that could not be passed on to service contracts.
Income Before Tax
The decline in income before income taxes during the three and six months ended
March 31, 2002 in 2001 is primarily due to a decrease in gross margin caused by
the decline in product revenues (brought about by the general slowdown of
economic activity and delays on certain projects caused by the events of
September 11th) and from higher fixed overhead costs (noted above). In contrast,
the six month period of 2001 included the favorable effect
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
of an engineering and product management contract. Also contributing to the
decline in income before income taxes was an increase (3% during the three month
period and 5% during the six month period) in selling, general and
administrative expenses to support higher product sales and expand product
territory. This increase includes additional staffing to service the Company's
railcar communication customers as it addresses a marketing opportunity for
future business over the next several years. Favorably affecting income before
income taxes were declines in interest expense (43% and 42%) due to lower
interest rates for the three and six months ending March 31, 2002, respectively.
Tax Provision
The Company's current income tax benefit represents federal, state and local
income tax savings from the carryback of a portion of the 2002 operating loss.
Deferred taxes represent the net increase in deferred tax assets as it relates
to certain book provisions to be deducted in future tax returns as well as a
carryforward of a portion of the 2002 operating loss.
Order Position
The Company's order position, excluding service, at March 31, 2002 amounted to
$13,300,000 as compared to $9,500,000 at March 31, 2001 and $7,800,000 at
September 30, 2001. The increase in order position reflects large new orders
received for several subway complexes. The order position includes $2.2 million
of recent orders for communication and announcement systems from several transit
car manufacturers that will be shippable over the next 36 month period. 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 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
(exclusive of orders for transit cars) over the next twelve to eighteen months.
The order position includes, and the Company continues to bid on projects that
might include significant subcontractor labor, involving electrical installation
by others at low margin but setting a platform for future product additions,
tenant installations and service revenues.
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) Exhibit 10. Third Amendment to Credit Agreement, dated as of May 14,
2002, among Firetector Inc., General Sound (Texas) Company, Casey
Systems Inc. and Pyrotech Service Inc. as co-borrowers and Citizens
Business Credit Company as lender.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2002.
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
(Principal Accounting and
Financial Officer), Secretary
and Director
Date: May 14, 2002