_________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the calendar year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ______ to ______
Commission File No.: 0-10449
TVI Corporation
(Exact name of registrant as specified in its charter)
Maryland 52-1085536
(State or other (I.R.S. Employer
jurisdiction or incorporation) Identification No.)
7100 Holladay Tyler Road, Glenn Dale, MD 20769
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 352-8800
__________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 Par Value
Title of Class
Check whether the issuer (1) filed all reports required to be filed by
Section 13 0r 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Revenues for the issuer's most recent fiscal year ended December 31, 1998
are $1,473,445.
As of December 31, 1998 there were 22,978,335 shares of Common Stock
issued and outstanding and the aggregate market value of the issued and
outstanding Common Stock held by non-affiliates was approximately $1,493,591.
_________________________________________________________________
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development
Organization. TVI Corporation (the Company) was incorporated as a
for-profit corporation under laws of Maryland on January 28, 1977. The
Company was formed primarily for the exploitation of a patent portfolio
acquired from one of the founders. The two principal patents of the portfolio
covered an "electrically conductive coating" and a "light-weight cellular
concrete".
Forfeiture of Charter. The company has operated continuously since
incorporation under the charter granted by Maryland. However, the charter was
forfeited from October 1996 to May 1998 by the state for the company's failure
to file Personal Property Tax Reports for the years 1992 and 1993. The
Company was unaware of the forfeiture, and continued to operate under the
direction of its Board of Directors in normal fashion. Upon learning of the
forfeiture, the Company filed all required reports and made all required
payments. The Company then filed Articles of Revival for its charter which
was approved by the state on May 27, 1998. The matter was reported to
shareholders in the Company's Proxy Statement of September 1998, and the
shareholders at the Annual Meeting on October 31, 1998 approved a resolution
ratifying all actions taken by the Board in the ordinary course of business
during the period when the charter had been forfeited. Counsel has advised
the Company that it has complied with requirements of Maryland law for revival
of corporate charters, and that there is no basis for legal liability because
of its operation during the period when its charter had been forfeited.
Bankruptcy. The Company voluntarily filed a Bankruptcy Petition under
the provisions of Chapter 11 of the U. S. Bankruptcy Code on March 21, 1991.
Its Plan of Reorganization was confirmed by the Court on April 15, 1993, and
was essentially implemented by June 30, 1993. The Company remained in
bankruptcy until it filed Final Reports and Certification during 1996. It
was discharged from bankruptcy by the Court on October 3, 1996.
Significant Asset Changes. During 1998 there were no material
reclassifications or consolidations, and no significant purchase or sale of
assets.
(b) Business of Issuer
The Company's business has historically been a supplier of thermal products to
the Department of Defense and to military agencies of other countries. The
two principal products have been thermal targets and tank decoys. Because of
the substantial down-sizing begun for the Department of Defense, the market
for the Company's products has been drastically reduced, and its business has
suffered accordingly. Further, there has been a concomitant reduction in
foreign military aid and a military downsizing in other countries which has
eliminated the Company's foreign market. To replace this lost market the
company began the development and sale of a light weight, rugged, and rapidly
deployable soft shelter (tent) for military use which used a collapsible frame
based upon the design used for its tank decoy frame. In late 1995 and 1996 it
began the development and sale of commercial versions of its shelters in an
effort to broaden its market and increase revenue. The Company continued both
marketing efforts and product development during 1998 for its commercial
products.
Principal Products. The Company's principal product lines in 1998 were
disposable thermal military targets, military soft shelters, and commercial
soft shelters. The targets consisted mainly of modules designed to simulate
the thermal signature of military tanks and related military assets. The
military shelters consisted mainly of one piece shelters with 150 to 400
square feet of floor space used for forward tactical applications such as
communications and aid stations. The principal commercial product was a small
rapid deploy shelter used primarily by emergency services agencies such as
HazMat teams and fire departments.
Distribution Methods. The Company distributes its products directly for
domestic sales. Marketing is done by in-house employees, largely by written
offers in response to Government announced purchases. The Company employs
in-country agents for international sales on a limited basis. The Company has
also supported its commercial marketing activities with in-house employees and
direct shipments. The Company has explored a variety of distribution options
for its commercial shelter products, but has made no agreements or
arrangements. It is likely that more than one distribution method will be
necessary to address the various market segments the Company has targeted.
New Products. The Company continued development of its line of
commercial shelters announced in 1996. These shelters employ a less rugged
version of the quick-erect frame used for military shelters, and use
commercial grade fabric for cladding. Varying sizes and styles are developed
for different commercial applications. The Company has developed a family of
sign frames, primarily billboards, a-frames, and walls intended for use as
outdoor portable signs. The frames are designed to be covered with various
forms of fabric which can be imprinted or otherwise display promotional
messages or images. The Company believes these items represent viable
products, and has applied for provisional patents. However, no formal market
analysis to validate the usefulness and marketability of these products has
been done. The Company also developed a Decontamination System consisting of
a shelter, water heater, and related items intended to support anti-terrorist
programs.
Competitive Conditions.
(1) Targets. The Company competes with two or three other small
companies in the thermal target market. The Company believes that its targets
are technically superior to the competing products, and are favored by the
military tank gunnery ranges. However, because of procurement regulations,
the company must compete on price as well as technical considerations. It has
implemented marketing initiatives aimed at maintaining market share.
(2) Shelters. The Company competes with one small company which makes
military shelters functionally similar to the TVI shelter. This company
appears to have substantially greater marketing and production capabilities,
and has a larger customer base. Another small company apparently entered this
market during 1998. There are also a large number of companies which make a
variety of military, commercial, and recreational shelters, and which may
compete with the Company in one or more markets. All of these companies are
larger and have greater resources than TVI. Because of procurement
regulations, practically all shelter sales to military agencies are
competitive, and the company typically competes with several other bidders.
Raw Materials. The Company uses only commercially available materials in
the manufacture of its target and shelter products. Some target manufacturing
processes are unique and proprietary to the Company, and the Company is therefor
e dependent upon these suppliers who have existing capability to meet the
Company requirements. The Company has employed the same sources for several
years which have proved reliable. However, there is no assurance that these
key target components will always be available. The Company has initiated
efforts to establish alternate sources for both material and processing.
Customer Dependency. A large percentage of the Company's sales are to
the Department of Defense agencies or civilian contractors for Defense use.
Loss of this market would have a material adverse effect on the Company. As
noted above the Defense market has been decreased significantly as a result of
military downsizing, and this has caused substantial damage to the Company's
market. The percentage of sales to private users in 1998 was approximately 2%
of revenues, but the percentage is expected to increase in 1999.
Patents, Trademarks, and Agreements. The Company has one patent covering
its targets and one covering its decoys. Both expire in December 2000. There
is little reliance on these patents in marketing activities. The Company also
owns five trademarks, only one of which is used in current marketing
activities. The Company applied for a patent on its shelter frame, and has
been issued a Notice of Allowance by the Patent Office. The Company has also
submitted applications for three Provisional Patents covering promotional
products, and intends to pursue full patents for them in 1999. There are no
royalty or licensing agreements, and there are no labor contracts.
Need for Government Approval. There are no requirements for Government
approval for any of the Company's principal products. However, the Company's
targets and decoys are covered by the International Traffic in Arms
Regulations (ITAR), and the Company must obtain prior approval from the U. S.
State Department to sell such products to foreign buyers. The Company is
currently licensed by the State Department.
Effect of Government Regulations. The Company is subject to various
regulations including Federal Acquisition Regulations, OSHA requirements, and
ITAR mentioned above. However, none of these regulations have a direct
material impact on the Company's business.
R & D Activities. The Company spent approximately $5,000 in 1997 and
$5,628 in 1998 for Research and Development activities. All expenditures were
associated with improvement and enhancement of military tactical shelters and
with design and development of shelter models appropriate in performance and
cost for a variety of commercial applications. These amounts do not include
research efforts which were incidental to normal marketing and production
activities.
Impact of Environmental Laws. There have been no specific costs
associated with compliance with environmental laws.
Total Employees. During 1998 the Company employed an average of about 30
employees, of whom all but one was full time.
ITEM 2. DESCRIPTION OF PROPERTY
(a) Principal Plant.
The Company leases space to house its administrative and manufacturing
activities. It relocated to a new facility upon expiration of its lease in
1998.
The Company's old space was first occupied in 1993 and consisted of a
warehouse type facility with a total of about 13,500 square feet. About
one-third of the warehouse was finished and was used for administrative
purposes with the remaining space used for production and inventory
activities. Annual rental of the facility was approximately $66,000. The
warehouse was located in a small industrial park at 10209 Bacon Drive,
Beltsville, MD 20705.
The lease for the first warehouse expired in February 1998, and the Company
elected to move to a new location. The new facility consists of about 17,000
square feet, of which about one-fourth is finished and used as office space.
The facility consists of a small basement area of a large warehouse. Address
of the new facility is 7100 Holladay Tyler Road, Glenn Dale, MD 20769. The
new facility is located a short distance from the old facility.
(b) Investment Policies.
The Company has made no investments in real property or related real property
financial instruments in the preceding three years.
(c) Description of Real Estate.
The Company does not own any real property.
ITEM 3. LEGAL PROCEEDINGS
(a) Pending Proceedings
The Company was a party to the following legal proceedings during 1998:
1. USA Access, Inc. v. TVI Corporation, et al
a. District Court for Clark County, Nevada, removed and ultimately
transferred to the U. S. District Court for Maryland (Southern Division)
b. Filed September 20, 1996
c. Principal parties are the Company, two adult children and former wife
of Mr. Molovinsky, and Mr. Molovinsky's current wife as custodian of stock for
three minor Molovinsky children
d. This is an Interpleader Action initiated by USA Access to decide
ownership of stock purchased by Mr. Molovinsky with TVI funds in his wife's
name and later transferred to Mr. Molovinsky's children and a former wife
e. TVI is pursuing recovery of all stock acquired with TVI funds
In June 1998 the Company filed suit in state court in Las Vegas, Nevada
seeking payment of promissory notes with a total face value of $75,000 from
USA Access, Inc. The notes had been purchased by Mr. Molovinsky with funds
embezzled from the company. In February 1999, the Company entered into an
agreement with USA Access establishing its ownership of the notes, setting the
interest rate at 9%, and the maturity date at September 19, 1999. USA Access
also consented to judgement if the full amount of $108,750 is not paid by
October 19, 1999.
In August 1998 the Federal District Court in Maryland awarded ownership to the
Company of 300,000 shares of USA Access common stock. The Company's claim for
an additional 200,000 shares was scheduled for trial. In February 1999, the
Company entered into an agreement with the Molovinsky claimants in which it
received 160,000 of the disputed shares and the Molovinskys received 40,000
shares. The Company was also granted voting control of the Molovinsky shares.
2. Bankruptcy
The Company filed for protection under Chapter 11 of the U. S. Bankruptcy Code
on March 21, 1991. The Petition listed $2,388,409 in assets and $1,697,371 in
liabilities. A balance sheet as of September 30, 1990 showed a negative
Shareholders Equity of $1,968,300.
The Company's Disclosure Statement and Plan of Reorganization were approved by
the Court in October 1992. A mailing to creditors and shareholders of the
documents along with a Ballot for voting on Plan was authorized in November
1992. Both creditors and shareholders approved the Plan, and it was confirmed
with amendments by the Court on April 15, 1993.
Under the Plan, all priority claims were to be paid in full, as were the
compromised amounts due to the secured creditors. General creditors with
claims of $500 or less were also to be paid in full. Other general creditors
were to receive 20% of their claims, such amount to be paid in Preferred
Stock. Debenture holders were to be paid 15% of the value of their
debentures, such amount to be paid in Preferred Stock. Preferred holders were
to be paid 20% of the value of their stock, such amount to be paid in new TVI
common stock valued at $.20 per share. Common stock underwent a 1 for 10
reverse split, and holders were then required to forfeit up to the first 1,000
post-split shares of their stock. Shareholders who wished to remain a
shareholder or to exchange any remaining stock were required to purchase 2,500
new shares at $.20 per share.
The Company implemented the Plan in May and June 1993, and all creditors were
paid as required. However, the Company remained in bankruptcy until it filed
all required reports in 1995 and 1996. It was discharged by the Court on
October 3, 1996.
(b) Impending Government proceedings
The Company was not aware of any contemplated proceeding by a government
authority in 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock is traded on the NASDAQ Bulletin Board under the
symbol TVIN. The National Quotation Bureau reports that there are twelve
market makers for the Company's common stock.
The high and low bid prices by quarter for 1997 and 1998 as reported by the
National Quotation Bureau were as follows:
<TABLE>
<CAPTION>
1997
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
<S> <C> <C> <C> <C>
Low Bid .0475 .03 .03 .01
High Bid .08 .06 .035 .035
1998
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Low Bid .025 .08 .05 .05
High Bid .36 .29 .09 .085
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not represent actual transactions.
(b) Holders
It is estimated that the Company had approximately 2,000 holders of its common
stock at the end of 1998.
(c) Dividends
There have been no dividends declared or paid on the Company's common stock
during the previous two years. No dividends are contemplated by the Company
in the foreseeable future.
The Loan Agreement with the Company's principal lending bank prohibits the
payment of cash dividends on common stock without the bank's express consent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
(a) Financial Condition for 1998
The Company's financial performance and status were negatively impacted by
decreased and inadequate revenue, fixed operating costs, and high debt
burden. These factors in turn impacted liquidity, while inadequate working
capital caused additional fees, penalties, and inefficiencies.
Because of its record of slow payment, some suppliers required pre-payment of
orders, creating a greater cash flow problem. Some working capital was
provided by postponement of interest on debentures. However, additional
funding was necessary for inventory financing, and this was provided by the
president via short term promissory notes.
The Company relocated to a new facility during the second calendar quarter.
This move caused some disruption in operations, and caused some additional
costs. The new facility also required a deposit of $15,000.
The Company received a monthly cash payment during 1998 from the lease of a
billboard printing machine it acquired in 1993. The lease rate was $5,000
per month for the first six months and $6,000 per month for the second half of
the year.
The highest amount of loans by the president for inventory financing during
1998 was $179,876 and for 1997 was $177,387. Interest rates paid on the loans
ranged from 10% to 13.5%. Additionally, Mr. Bender is owed $30,000 for unpaid
salary in 1995. No interest is paid on this amount. The Company believes
that the terms from Mr. Bender are more favorable than those which could be
obtained from other sources.
The Company has adequate production equipment to support its current level of
operations. It will require additional investment in equipment to meet
efficiency and delivery requirements should its production levels increase
significantly. It intends to finance such capital investment when its sales
reach the requisite level.
There are no significant seasonal aspects to the Company's operations. However,
military gunnery operations tend to slow down in winter months, and range
operations show a noticeable increase during the summer as more Reserve and
Guard units engage in summer training. Additionally, there are some spending
patterns characteristic of military spending.
The Company has considered a number of strategies to improve its working
capital problem. It has discussed an infusion of either debt or equity
capital with several sources. However, factors such as its low revenues, high
debt, and operating loss have made such infusion very difficult. Further,
lack of audited financial statements precluded some alternatives. The Company
completed independent audits of 1996 and 1997 in late 1998, and intends to
maintain current reporting in the future. Thus, its opportunities may be
improved in the future. It intends to seek additional capital, equity and/or
debt, during 1999.
The Company has reduced its expenses for staff and facilities to the bare
minimum. Other costs such as audit, legal, and shareholder costs are
necessitated by the Company's publicly owned status. The only variable G & A
costs are for marketing, which the Company has and intends to continue
increasing. Thus, the Company does not believe it possible or prudent to
further reduce its spending for G & A functions.
The Company expects that its performance and liquidity problems will persist
until revenues reach a level sufficient to generate a gross margin adequate to
cover all operating costs and provide some level of operating income. The
Company has made increased revenue its primary priority for the foreseeable
future, and intends to increase its spending on marketing activities as much
as possible. The Company believes that its products and markets are
sufficient to achieve a satisfactory revenue level, but it is unable to
predict when this might occur.
(b) Results of Operations
Comparison of financial results for the preceding years is presented for 1996,
1997, and 1998.
1998 Compared With 1997. Total revenue for 1998 was $1,473,445 as
compared to $1,762,374 for 1997. There was a substantial operating loss for
both years. An off-setting non-operating gain in 1997 reduced the net loss to
only $3,634. In 1998 there was also a non-operating loss which increased the
Net Loss of $139,800. Financial performance was characterized by low revenues
which did not generate sufficient gross margin to cover administrative costs.
Sales of core products, shelters and targets, decreased about 7% in 1998 from
1997. Cost of Sales improved from 66% i n 1997 to 60% in 1998. The ratio of
direct labor remained the same. Total G & A costs were about the same, but
the ratio increased from 42% to 47% because of reduced amount of revenue.
1997 Compared With 1996. Revenue for 1997 was $1,762,374 compared with
$2,632,802 for 1996. The 1996 revenue was significantly higher due to the
completion of a large Air Force contract which was not repeated during 1997.
There was a net loss for 1997 of $3,634 as compared to a net loss of $72,303
in 1996. Gross operating margin increased from 24.9% in 1996 to 27.1% in
1997. A significant portion of the 1996 contract was contracted out and was
billed to the Air Force with lower gross
margin.
Sales of core products, shelters and targets, decreased about 7% in 1997 from
1996. Cost of Sales improved from 70% i n 1996 to 66% in 1997. The ratio of
direct labor remained about the same. Total G & A costs were a little less in
1997, but the ratio increased from 40% to 42% because of reduced amount of
revenue.
(c) Discussion of Year 2000 (Y2K) Issues
The Company has completed its internal review of Y2K readiness but has not yet
completed its review of the readiness of third party suppliers. In general,
the Company does not believe that it will be subject to any material
disruptions or costs from Y2K issues. However, if there is any disruption in
core support services such as utilities and communications then the Company
would experience substantial problems and costs.
State of Readiness
1. The Company has completed its review of its Information Technology
(IT) systems and resources and determined that they are Y2K compliant. All
computer systems have been tested and found to be Y2K compliant. The
manufacturer of its Accounting System has provided a statement that the
version currently used is Y2K compliant. All other software systems have been
determined to be either Y2K compliant, non-date sensitive, or not material to
operations. The Company has examined all of its machinery and has determined
that it owns no automated systems or equipment with embedded controllers.
2. The Company has completed its assessment of its Y2K problems, has
upgraded some of its computer systems, and has determined that no further
corrective action is necessary.
3. The Company's business and operations are dependent upon a number of
third parties. It has not yet completed its review of the status of third
party readiness, or the impact that lack of readiness would have on the
Company. Third parties upon whom the Company is dependent include suppliers
of raw material, customers, and suppliers of utilities and services. The
nature of the relationship and dependency for each group are as follows:
Suppliers. All of the Company's products are standard commercial items and
in general are available from several sources. However, the Company has
established relationships with preferred sources, and loss of these sources
would have a negative impact on costs and efficiency, and in some cases the
ability of the Company to meet product specifications. The Company is reliant
upon one source for fabrication of a major target component. Failure of this
supplier would severely disrupt the Company's ability to operate. The Company
is initiating inquiries to its major suppliers to determine the likelihood of
interruptions from Y2K issues.
Customers. Interruption of business operations of the Company's customers
would reduce revenues or delay payments. The Company's customers are both
commercial and government. The Company sells small orders to a variety of
commercial customers, and loss of any one customer would not be material. The
Company sells small to large orders to several military customers, including
one whose total annual orders are significant. Loss of this customer would
have a material adverse impact on the Company.
Services. The Company uses the routine services of a number of third parties
in the ordinary course of business. It is dependent upon four separate
utility firms for water, power, gas, and phone service. No alternative
sources are readily available. Freight and communications services are
provided by or available from several different firms.
Costs to Address Y2K Issues
All of the Company's internal systems are Y2K compliant, and all of its
Y2K issues are external. Thus, the Company does not expect to incur any
direct costs to address Y2K issues.
Risks of Y2K Issues
The Company's Y2K risks are those associated with business interruptions
at third party sources. Any interruption of the flow of orders, payments,
supplies, or services would have a material adverse effect upon the Company.
Major risks from interruption of business at third party sources are as
follows:
Suppliers. Any significant delay in obtaining raw materials would prevent
the Company from making timely deliveries which would negatively impact both
obtaining new orders and the flow of revenue. The failure of a key Company
supplier could increase the lead time and cost of critical raw material which
would have a significant negative impact on Company business. The failure of
any major supplier could create material shortages which would also increase
lead time and cost.
Customers. The Company's major customers are agencies of the U.S.
Government. Any interruption of operations occurring at a major customer
could stop the issuance of purchase orders. Interruption of financial
operations could stop or delay payment of orders. The Company has inadequate
working capital and no line of credit, and any extended delay of orders or
payment could cause the Company to cease operations. The Company does not
expect significant Y2K interruptions of government operations.
Services and Support. The Company relies upon a number of third parties for
various kinds of essential support services. These include banks for
financial services, utility companies for power and water, transportation
companies for material and order deliveries, and phone companies for
communications services. Interruption of any of these services would have an
immediate and adverse impact on Company operations. Further, such
interruption could be industry wide, creating a cascading array of failures,
shortages, and interruptions. Such industry interruptions could be disastrous
for the Company, and could force it to cease operations.
Contingency Plans
The Company has not established a Contingency Plan. It intends to
carefully monitor projections concerning Y2K interruptions as 1999 progresses,
to assess the state of readiness of critical material suppliers, and to
implement preventive and ameliorative actions as indicated. The Company has
considered contingency actions as it reviewed its Y2K risks, and has
identified potential courses of action. It currently is, and intends to
continue, exploring potential contingency actions. Potential actions
include:
- identification of alternative materials and sources
- stockpiling of crucial and long lead time materials
- increase in working capital and obtaining of credit line
- arrangements for factoring of government invoices
ITEM 7. FINANCIAL STATEMENTS
The Audit Report with financial statements for the year ending December 31,
1998 is included as an enclosure to this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
(a) Independent Accountants.
The Company's operations for 1996, 1997, and 1998 were audited by the firm of
Daniel C. Gilliland, CPA, P.C. The Company had no independent accountants for
the years 1990 through 1995. There have been no disagreements with the Audit
findings or statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Director and Executive Officers
The discussion under "Officers, Directors, and Nominees" and "Information on
Nominees" in the Company's definitive Proxy Information Statement for its 1999
Annual Meeting of the Shareholders is incorporated herein by reference.
(b) Significant Employees
There were no employees essential to the Company's activities.
(c) Family relationships
There are no known family relationships between any of the Company's officers
or directors.
(d) Involvement in Legal Proceedings
No officer or director was known to be involved in an any legal proceeding
involving bankruptcy, criminal activity, securities or banking issues, or
commodities violations.
(e) Compliance with Section 16(a)
The Company believes that reports required by Section 16(a) of the Exchange
Act of its directors and officers were filed as required.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes executive compensation for the past three
years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
<S> <C> <C> <C> <C> <C> <C>
Name/Position Year Salary Bonus Other Restricted SARs
Stock Awards
CEO:
Allen Bender 1996 48,000 0 * 0 0
1997 60,000 0 ** 0 0
1998 60,000 0 0 0 0
<FN>
* Mr. Bender was granted options for 500,000 shares of stock, of which
250,000 vested on October 28, 1996 and the remaining 250,000 vested on July
31, 1997 based upon his continuous service as president.
** Mr. Bender was granted an option to purchase 150,000 shares of stock,
vesting upon his service as president for the coming year.
</TABLE>
No other officer, director, or employee received total compensation which
exceeded $100,000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
No individual or group is known by the Company to own 5% or more of its common
stock.
(b) Security Ownership of Management
The discussion under "Officers, Directors, and Nominees" and "Information on
Nominees" in the Company's definitive Proxy Statement for its 1999 Annual
Meeting of the Shareholders is incorporated herein by reference.
(c) Arrangements for Change in Control
There are no existing arrangements and no pending or planned arrangements
which would result in a change in control of the company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during 1997 and 1998 between the Company and any
officer, director, or nominee for director, or a member of their family,
having a value which exceeded $60,000.
ITEM 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K
The Company filed one Form 8-K report with the SEC during 1998 as follows:
a. November 2, 1998 reporting results of its 1998 annual meeting and the
election of a new Board of Directors
This Form 8-K report has been previously filed with the SEC and is
incorporated herein by reference.
ITEM 14. SUBSEQUENT EVENTS
On January 1, 1999 the Company signed an agreement with Amateur Sports Group,
Inc. (ASG) granting ASG exclusive distribution rights for its Hospitality and
Promotion product line. The agreement granted TVI a six month option to
acquire ASG upon specified terms. ASG is located in Millersville, Maryland.
In February 1999 the Company settled its two remaining lawsuits seeking
ownership of debt and equity in USA Access, Inc. purchased with funds
embezzled from TVI. Details are presented in Item 3. (a) above.
ITEM 15. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By:
/s/ Allen E. Bender
Allen E. Bender
Chief Executive Officer
and Chairman of the Board
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
TVI CORPORATION
Years Ended December 31, 1998 and 1997
DANIEL G. GILLILAND, CPA, P.C.
7700 LEESBURG PIKE
SUITE 402B
FALLS CHURCH, VA 22043
<PAGE>
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT 1 - 2
FINANCIAL STATEMENTS
Balance Sheets 3 - 4
Statements of Income (Loss) and Accumulated Deficit 5
Statements of Shareholders' Equity 6
Statements of Cash Flows 7
NOTES TO FINANCIAL STATEMENTS 8 - 15
SUPPLEMENTARY INFORMATION
Schedules of Cost of Sales 16
Schedules of General and Administrative Expenses 17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
TVI Corporation
7100 Holladay Tyler Road, Ste. 300
Glenn Dale, MD 20769
We have audited the accompanying balance sheets of TVI Corporation as of
December 31, 1998 and 1997, and the related statements of income (loss) and
accumulated deficit, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TVI Corporation as of
December 31, 1998 and 1997, and the results of its operations, its changes in
shareholders' equity, and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note M to the financial
statements, the Company has incurred a substantial cumulative net loss from
operations from its inception through December 31, 1998, and increased its
accumulated deficit during the year. The Company has violated certain loan
covenants, does not have sufficient cash flow to pay interest on its
debentures, faces an economic environment of reduced military spending and
operates without a bank line of credit. The Company's financial position and
operating results raise substantial doubt about its ability to continue as a
going concern. Management's activities in regard to these matters are also
described in Note M. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules on pages 16 and 17 are
presented for purposes of additional analysis and are not required parts of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
Daniel G. Gilliland, CPA, P.C.
Falls Church, VA
May 13, 1999
<PAGE>
TVI CORPORATION
BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
1998 1997
CURRENT ASSETS
Cash $18,617 $21,110
Accounts receivable 139,139 103,148
Inventories 548,792 626,695
Prepaid expenses
and other (Note C) 6,377 2,973
TOTAL CURRENT ASSETS 712,925 753,926
PROPERTY AND EQUIPMENT (Note D)
Shop equipment 671,666 658,140
Furniture and fixtures 15,639 21,677
subtotal 687,305 679,817
Less: Accumulated depreciation 518,345 443,695
NET PROPERTY AND EQUIPMENT 168,960 236,122
OTHER ASSETS
Taxes receivable 2,468 2,160
Deposits and Other 22,219 2,003
Patents
(net of accumulated amortization)13,290 0.00
TOTAL OTHER ASSETS 37,977 4,163
TOTAL ASSETS $919,862 $994,211
<FN>
See independent auditor's report and notes to financial statements.
</TABLE>
<PAGE>
TVI CORPORATION
BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION> LIABILITY AND SHAREHOLDERS' EQUITY
<S> <C> <C>
1998 1997
CURRENT LIABILITIES
Loans payable - related parti $179,876 92,261
Current portion of long term debt286,784 206,624
Accounts payable - trade 35,933 108,068
Accrued liabilities (Note E) 99,214 146,983
Sales deposits 5,874 0.00
TOTAL CURRENT LIABILITIES 607,681 553,936
LONG-TERM LIABILITIES (Note F)
State Taxes Payable - MD 16,629 0.00
Notes payable 41,973 96,688
Debentures 243,702 185,000
Less: Current portion (286,784) (206,624)
TOTAL LONG-TERM LIABILITIES 15,520 75,064
STOCKHOLDERS' EQUITY (Note I)
Preferred stock 60,911 71,708
$1 Par Value; authorized 1,200,000 shares:
issued and outstanding 60,911 shares
Common stock 229,780 222,189
$.01 par value; 25,000,000 shares authorized,
22,978,335 issued, 22,740,835 and 21,981,381
outstanding in 1998 and 1997, respectively
Additional paid-in-capital 12,022,250 11,947,794
Accumulated deficit (12,002,030) (11,862,230)
Treasury stock - at cost
(237,500 shares) (14,250) (14,250)
TOTAL STOCKHOLDERS' EQUITY 296,661 365,211
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $919,862 $994,211
<FN>
See independent auditor's report and notes to financial statements.
</TABLE>
<PAGE>
TVI CORPORATION
STATEMENTS OF INCOME (LOSS) AND ACCUMULATED DEFICIT
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
REVENUE
Sales $1,407,240 $1,700,980
Rental income - equipment 66,000 60,000
Other income 205 1,394
Total Revenues 1,473,445 1,762,374
COST OF SALES 961,433 1,285,021
GROSS PROFIT 512,012 477,353
GENERAL AND ADMINISTRATIVE EXPENSES 588,084 577,971
OPERATING INCOME (76,072) (100,618)
OTHER INCOME (EXPENSES)
Interest income 275 84
Interest expense (47,242) (48,452)
Loss on disposal of assets (1,277) (6,138)
Other income (expense) 5,484) 151,490
Total Other Income (Expenses) (63,728) 96,984
INCOME(LOSS) BEFORE INCOME TAXES(139,800) (3,634)
INCOME TAXES (TAX BENEFIT) (Note H) 0 0
NET INCOME (LOSS) (139,800) (3,634)
ACCUMULATED DEFICIT,
BEGINNING OF THE YEAR (11,862,230) 11,858,596)
ACCUMULATED DEFICIT,
END OF THE YEAR (12,002,030) (11,862,230)
Earnings(loss) per
common share (0.0063) (0.0002)
Weighted Average of
Common Shares Outstanding 22,361,108 22,218,431
<FN>
See independent auditor's report and notes to financial statements.
</TABLE>
<PAGE>
TVI CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Preferred Common Capital Retained Treasury Total
Stock Stock Surplus Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1996 72,158 222,180 11,957,353 (11,858,596) 00 393,095
900 common shares (450) 9 441 0
issued for 450 preferred shares
Receipt of 337,500 shares (20,250) (20,250)
treasury stock in
settlement of law suit
Issue of 100,000 shares of 6,000 6,000
treasury stock in
settlement of lawsuit
Capital surplus reclassified (10,000) (10,000)
Net Income (Loss) for 1997 (3,634) (3,634)
Balance
December 31, 1997 71,708 222,189 11,947,794 (11,862,230)(14,250) 365,211
37,500 restricted common shares 375 15,250 15,625
issued in exchange for 1.25
promissory notes
700,000 common shares issued 7,000 48,625 55,625
upon exercise of options
21,954 common shares(10,797) 216 10,581 0
for 10,797 preferred shares
Net Income (Loss) for 1998 (139,800) (139,800)
Balance
December 31, 1998 60,911 229,780 12,022,250 (12,002,030 (14,250)296,661
Total Shares issued at 12-31-97 22,218,881
Total Shares issued at 12-31-98 22,978,335
<FN>
See independent auditor's report and notes to financial statements.
</TABLE>
<PAGE>
TVI CORPORATION
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (139,800) (3,634)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation 82,729 84,797
(Increase) decrease in accounts receivable(35,991) 68,421
(Increase) decrease in inventories 77,903 18,021
(Increase) decrease in other assets (23,928) 10,462
Increase (decrease) in accounts payable (72,135) (65,796)
Increase (decrease) in sales deposit 5,874 0
Increase (decrease) in accrued liabilities(47,769) 23,767
Total adjustments (13,316) 139,672
NET CASH PROVIDED BY OPERATING ACTIVITIES: (153,116) 136,038
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal (Purchase) of intangible assets (14,312) 0
Disposal (Purchase) of capital equipment (14,545) 5,405
NET CASH ( USED IN ) INVESTING ACTIVITIES: (28,857) 5,405
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes
payable - related parties 87,615 (45,646)
Issuance (purchase) of common stock 71,250 (14,250)
Principal payments on long-term obligations (54,715) (68,345)
Issuance of long term debt 75,331 0
NET CASH PROVIDED BY FINANCING ACTIVITIES 179,481 (128,241)
NET INCREASE (DECREASE) IN CASH (2,493) 13,202
CASH, BEGINNING OF YEAR 21,110 7,908
CASH, END OF YEAR (18,617) 21,110
<FN>
See independent auditor's report and notes to financial statements.
</TABLE>
<PAGE>
TVI CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
TVI Corporation was incorporated as a for-profit corporation under the laws of
Maryland on January 28, 1977. It has since operated continuously under the
charter granted by Maryland. The Company was formed primarily for the
exploitation of a patent portfolio acquired from one of the founders. The two
principal patents of the portfolio covered an "electrically conductive
coating" and a "light-weight cellular concrete".
The Company's business has historically been as a supplier of thermal products
to the Department of Defense and to military agencies of other countries. The
two principal products have been thermal targets and tank decoys. Because of
the substantial downsizing of the Department of Defense, the market for the
Company's products has been drastically reduced, and its business has suffered
accordingly. Further, there has been a concomitant reduction in foreign
military aid and a military downsizing in other countries which has eliminated
the Company's foreign market. To replace this lost market the Company began
the development and sale of a lightweight, rugged, and rapidly deployable soft
shelter (tent) for military use that used a collapsible frame based upon the
design used for its tank decoy frame. During 1995 and 1996 it began the
development and sale of commercial versions of its shelters in an effort to
broaden its market and increase revenue.
The Company's principal product lines in 1998 and 1997 were disposable thermal
military targets and military soft shelters. The targets consisted mainly of
targets simulating the thermal signature of military tanks and related
military assets. The shelters consisted mainly of one-piece shelters with 150
to 400 square feet of floor space used for forward tactical applications such
as communications and aid stations.
A summary of TVI Corporation's significant accounting policies consistently
applied in the preparation of the accompanying financial statements is as
follows:
1. Revenue Recognition
Revenue is recognized on standard product sales using the unit-of-delivery
method whereby sales are recorded when title is transferred.
Included in product sales for the years ended December 31, 1998 and 1997 is
approximately $1,358,000 and $1,649,000 respectively, in sales of products to
the United States Government.
2. Inventories
Inventories are valued at the lower of cost or market determined by the
first-in, first-out (FIFO) method.
<PAGE>
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
3. Trade Accounts Receivable
The company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
4. Property and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives, using the
straight-line method.
5. Advertising Costs
The company expenses advertising costs as incurred. During 1998 and 1997,
$15,939 and $9,787 respectively was expensed.
6. Compensated Absences
No accrual has been made for compensated absences because unused amounts of
leave do not vest and are not paid upon separation from employment with the
company.
7. Research and Product Development Costs
Research and product development expenditures are charged to operations as
incurred.
8. Net Loss Per Share
Net loss per share of common stock is computed based upon the weighted
average number of shares outstanding. Non-qualified stock options granted by
the Company are not considered in the per share calculations as they are
anti-dilutive.
9. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
amounts could differ from these estimates.
<PAGE>
NOTE B - INVENTORIES
Inventories at December 31, 1998 and 1997 are classified as follows:
1998 1997
Finished Goods $77,719 $69,326
Work in Progress 11,286 16,911
Raw Materials 459,787 540,458
Total Inventories $548,792 $626,695
Included in finished goods at December 31, 1998 and 1997 are $56,936 and
$55,074 respectively, of field service, demonstration and other sales support
inventory.
NOTE C - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid Expenses
Prepaid expenses are comprised of the following:
1998 1997
Prepaid insurance $6,377 $2,973
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
1998 1997
Furniture and fixtures $15,639 $21,677
Machinery and equipment 671,666 658,140
Subtotal 687,305 679,817
Less: accumulated depreciation 518,345 443,695
$168,960 $236,122
NOTE E - ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
1998 1997
Accrued salaries $8,736 $7,585
Accrued interest 9,854 60,163
Accrued accounting expense 12,000 12,000
Deferred compensation 54,999 54,999
Withholding Taxes Payable 11,774 9,596
Other 1,851 2,640
Total Accrued Liabilities $99,214 $146,983
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations are comprised of the following:
1998 1997
Debentures $243,702 $185,004
Loans payable - Capital Bank 41,973 96,688
Pre-petition Taxes 16,629 0
Less Current Maturities (286,784) (206,624)
Total Long-term obligations $15,520 $75,064
Debentures consisted of a promissory note with interest at ten percent (10%),
payable semi-annually on December 15 and June 15. The principal balance of
the notes plus any accrued interest was due and payable in full on December
15, 1998. At maturity the principal was $172,500 and total interest accrued
was $71,202. Two settlement offers were made to holders of the Notes, neither
of which were accepted.
Consequently, the combined amounts due were unilaterally converted to a new
Notes, payable on demand, with interest at a rate of 5% per annum.
The liability to Capital Bank is collateralized by a blanket first lien on
certain accounts receivable, contract rights, inventories, and property, plant
and equipment. The interest is payable at the bank's prime rate plus 2%. As of
December 31, 1998 and 1997, the Company was in default because it had violated
certain covenants specified under the loan agreement. The lender has waived
its rights under the default provisions.
NOTE G - COMMITMENTS AND CONTINGENCIES
1. Operating Leases
The Company is obligated under operating leases for office and warehouse space
and office equipment. Certain of these leases are subject to escalation
clauses. The following is a schedule by years of the approximate future
minimum rental payments required under operating leases that have initial or
remaining lease terms of one year or more as of December 31, 1998:
Year ending December 31,
1999 70,040
2000 72,141
2001 74,305
2002 76,534
2003 78,831
Total minimum lease obligations $371,851
<PAGE>
NOTE G - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rental expense under all leases charged to operations for the year ended
December 31, 1998 and 1997 aggregated approximately $66,736 and $83,019,
respectively.
2. Year 2000 Systems Contingency
The Year 2000 presents problems for entities that are dependent on computer
hardware and software to perform date dependent calculations. A great deal of
software and microchip technology that is still operational was developed in
the past utilizing two digit years rather than four digit years. Technology
utilizing two digit years most likely will not be able to distinguish the year
2000 from 1900, and therefore may shut down or perform date sensitive
calculations and comparisons as much as 100 years and infinite dollar amounts
in error. The problem may also affect non-financial computer or chip dependent
systems, such as security systems, communication systems, elevators, time
clocks, process controls and the like.
The Company has been advised of this potential problem not only in its own
systems, but also the potential effects on the Company of malfunctions in
systems of its suppliers and vendors. The financial impact of any potential
problems related to the Year 2000 can not be estimated at this time.
NOTE H - INCOME TAXES
The Company has reported net aggregate losses for Federal income tax purposes
from its inception through December 31, 1998 of approximately $ 16,715,000.
The following is a summary of the net operating loss (NOL) carryover available
at December 31, 1998:
Year of Net Operating Loss
Expiration Carryforward
2002 $548,685
2003 423,169
2004 388,200
2005 424,595
2006 1,153,109
2007 338,974
2008 911,381
2009 856,691
2010 2,630,062
2011 86,528
2012 3,634
$7,761,394
<PAGE>
NOTE I - STOCKHOLDERS' EQUITY
1. Preferred Stock
As of December 31, 1998 and 1997, the Company was in arrears on preferred
stock dividends in the amount of approximately $6,091 and $7,170,
respectively.
2. Non-qualified Stock Options Plan
In 1995, the Company approved a nonqualified incentive stock option plan for
the officers and key employees. Options issued under this plan were
exercisable at prices ranging from $.05 to $.14 per share. A summary of the
activity under the plan is as follows:
YEAR NUMBER NUMBER STOCK
GRANTED EXPIRATION OF SHARES EXERCISED TRADING RANGE
1995 1998 252,000 ---- $0.02 - $0.97
1995 2000 850,000 ---- $0.02 - $0.97
1996 1998 250,000 100,000 $0.04 - $0.18
1996 1999 415,000 250,000 $0.04 - $0.18
1997 2000 875,000 325,000 $0.04 - $0.18
1998 2003 700,000 25,000 $0.05 - $0.18
1998 1999 500,000 ---- $0.10 - $0.18
3,842,000 700,000
3. Common Stock Transactions
The Company issued Units in a private placement in early 1994, which included
a $10,000 Promissory Note with interest at 10% payable semi-annually.
Pursuant to a Board resolution at its April 1996 meeting, the company
conducted a voluntary exchange offer in which holders could exchange the Note
and its accrued interest for 37,500 shares of restricted common stock. Under
the offer, 1.25 Notes representing $12,500 face value and $3,125 accrued
interest was exchanged for a total of 30,000 shares of stock during 1998.
No notes were exchanged in 1997.
Additionally, in 1998 a holder of 10,797 preferred shares exchanged his stock
for 21,594 shares of common stock. The Preferred has a face value of $1 per
share. Stock was exchanged at the rate of two shares of common stock for each
share of preferred stock.
In 1998 three directors of the Company were issued 700,000 shares of
restricted common stock upon the exercise of non-qualified incentive stock
options.
<PAGE>
NOTE J - LEGAL MATTERS
In October 1997 TVI settled a claim with a landlord seeking payment of rent
owed. The claim was settled by payment to the landlord of cash, one
TVI-produced shelter, shares of TVI stock and an option to acquire additional
shares of TVI stock. The amount of this settlement is included in rent
expense for the year ended December 31, 1997.
In June 1998, the Company filed suit in state court in Las Vegas, Nevada
seeking payment of promissory notes with a total face value of $75,000 from
USA Access, Inc. The notes had been purchased by a prior employee with funds
embezzled from the company.
In August 1998 the Federal District Court in Maryland awarded ownership to the
Company of 300,000 shares of USA Access common stock. The Company's claim for
an additional 200,000 shares was scheduled for trial.
NOTE K - SUPPLEMENTAL CASH FLOWS INFORMATION
Supplemental Disclosures of Cash Flow Information
The Company paid the following amounts for interest and income taxes during
the years ended December 31, 1998 and 1997:
1998 1997
Interest $47,242 $48,452
Income Taxes 0 0
NOTE L - RELATED PARTY TRANSACTIONS
The president of the company, who is also a shareholder, makes periodic loans
to the company for working capital purposes. As a result, the company has
various collateralized notes payable to the president of the company with a
total remaining balance of $179,876 and $92,261 as of December 31, 1998 and
1997, respectively. These notes pay interest at rates of 10% to 13.5% per
annum and are secured by Senior Purchase Money Liens of like amounts.
At December 31, 1998 and 1997, officers of the Company had unpaid deferred
compensation due in the aggregate sum of $54,999, and $54,999, respectively.
A director is also a partner of a law firm that provides the Company with
general legal services. As of December 31, 1998 and 1997, the Company had an
outstanding balance of $7,297 and $29,689, respectively, in connection with
services provided by the director's law firm. Additionally, on June 30, 1998
the company issued a one-year $50,000 convertible promissory note bearing
interest at ten percent per annum to the director for services rendered. The
note is convertible into common stock of the Company at a conversion price of
$.10 Note principal for each one share of stock for a period of one year from
the date of the issuance of the note.
<PAGE>
NOTE M - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which assume continuation of the
Company as a going concern. However, the Company has incurred substantial
losses from operations since inception. The Company has continued to sustain
losses from operations through December 31, 1998 and 1997. The Company was
in default on its bank borrowings as of December 31, 1998 and 1997 and the
bank has waived its rights under the default provision. Accordingly,
recoverability of a major portion of the recorded asset amounts in the
accompanying balance sheet is dependent upon the Company's ability to meet
its financing requirements on a continuing basis and the success of future
operations. Management is aware of the difficulty of its situation and is
pursuing various avenues that may improve or resolve the Company's situation.
Management's activities include efforts to reduce expenses and increase
revenue, attempts to obtain additional equity financing, meetings with and
offers to bondholders; and meetings with possible prospective purchasers,
especially those who may benefit from the knowledge and access to the defense
market. Regardless of these activities, the Company may not be successful and
may be required to take more drastic steps.
These financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 18,617
<SECURITIES> 0
<RECEIVABLES> 139,139
<ALLOWANCES> 0
<INVENTORY> 548,792
<CURRENT-ASSETS> 712,925
<PP&E> 687,305
<DEPRECIATION> 518,345
<TOTAL-ASSETS> 919,862
<CURRENT-LIABILITIES> 607,681
<BONDS> 0
0
60,911
<COMMON> 229,780
<OTHER-SE> 12,022,250
<TOTAL-LIABILITY-AND-EQUITY> 919,862
<SALES> 1,407,240
<TOTAL-REVENUES> 1,473,445
<CGS> 961,433
<TOTAL-COSTS> 961,433
<OTHER-EXPENSES> 588,084
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,242
<INCOME-PRETAX> (123,314)
<INCOME-TAX> 0
<INCOME-CONTINUING> (123,314)
<DISCONTINUED> 0
<EXTRAORDINARY> (16,486)
<CHANGES> 0
<NET-INCOME> (139,800)
<EPS-BASIC> .006
<EPS-DILUTED> .006
</TABLE>
