<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended January 31, 1998
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______ to ______
Commission file number 0-8485
Grip Technologies, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 95-1980894
- --------------------------------------------------------------------------------
(State of incorporation) (I.R.S. employer identification number)
10 Corporate Park, Suite 130
Irvine, California 92606-5140
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(714) 252-8500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 [_]
The number of shares outstanding of the Registrant's Common Stock as of
March 16, 1998: 6,187,592
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II OTHER INFORMATION
Item 2. Changes in Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 17
</TABLE>
2
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 7,615 $ 107,531
Accounts receivable, net of allowance for
doubtful accounts of $41,069 at January
31, 1998 and $70,070 at July 31, 1997 383,963 357,395
Inventories 634,556 493,466
Other current assets 55,124 38,231
---------- ----------
Total current assets 1,081,258 996,623
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $976,714 at January 31,
1998 and $800,501 at July 31, 1997 698,171 721,021
INTANGIBLES, net of accumulated amortization
of $468,094 at January 31, 1998 and
$1,123,066 at July 31, 1997 925,555 1,024,844
---------- ----------
Total assets $2,704,984 $2,742,488
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
3
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
----------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term obligations $ 1,321,997 $ 1,326,019
Notes payable to stockholders 1,326,960 716,960
Short-term borrowings -- 10,000
Accounts payable 572,481 515,262
Accrued liabilities 259,643 209,826
----------- -----------
Total current liabilities 3,481,081 2,778,067
LONG-TERM OBLIGATIONS, net of current portion 935,756 963,545
----------- -----------
Total liabilities 4,416,837 3,741,612
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock
Authorized -- 3,000,000 shares
Issued and outstanding -- 875,000 shares at
January 31, 1998 and 887,500 shares at
July 31, 1997 875,000 887,500
Common stock
Authorized -- 25,000,000 shares
Issued and outstanding -- 6,187,592 shares at
January 31, 1998 and 6,061,092 shares at
July 31, 1997 5,986,415 5,913,415
Accumulated deficit (8,573,268) (7,800,039)
----------- -----------
Total stockholders' equity (deficit) (1,711,853) (999,124)
----------- -----------
Total liabilities and stockholders'
equity (deficit) $ 2,704,984 $ 2,742,488
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
4
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Quarters Ended
January 31, January 31,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $1,776,340 $2,174,734 $1,062,000 $1,107,808
COST OF SALES 1,385,040 1,670,544 784,709 880,790
---------- ---------- ---------- ----------
Gross profit 391,300 504,190 277,291 227,018
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling 291,782 338,143 145,742 164,885
General and administrative 405,407 339,133 228,206 166,237
Research and development 29,184 21,191 17,219 14,378
Depreciation 176,213 202,224 109,225 104,026
Intangible amortization 99,288 99,288 49,644 49,644
---------- ---------- ---------- ----------
Total operating expenses 1,001,874 999,979 550,036 499,170
---------- ---------- ---------- ----------
Loss from operations (610,574) (495,789) (272,745) (272,152)
---------- ---------- ---------- ----------
INTEREST AND OTHER
Interest expense, net 164,596 89,914 80,198 52,131
Other income (2,741) (13,781) (836) (13,781)
---------- ---------- ---------- ----------
161,855 76,133 79,362 38,350
---------- ---------- ---------- ----------
Loss before income taxes (772,429) (571,922) (352,107) (310,502)
PROVISION FOR INCOME TAXES 800 1,600 400 -
---------- ---------- ---------- ----------
Net loss $ (773,229) $ (573,522) $ (352,507) $ (310,502)
========== ========== ========== ==========
Basic and diluted loss
per share $ (0.12) $ (0.10) $ (0.06) $ (0.05)
========== ========== ========== ==========
Weighted average common
shares outstanding 6,187,592 5,649,316 6,187,592 5,716,708
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
5
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Six Months Ended January 31,
---------------------------
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(773,229) $(573,522)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 176,213 202,224
Amortization of intangibles 99,288 99,288
(Increase) decrease in accounts receivable (26,568) 207,826
Increase in inventories (141,090) (96,271)
(Increase) decrease in other current assets (16,893) 7,226
Increase (decrease) in accounts payable 57,219 (54,358)
Increase in accrued liabilities 49,817 11,036
--------- ---------
Net cash used in operating activities (575,243) (196,551)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (153,363) (167,463)
--------- ---------
Net cash used in investing activities (153,363) (167,463)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
to stockholder 610,000 -
Principal repayments of long-term obligations (31,810) (51,743)
Proceeds from issuance of long-term obligations - 400,000
Net increase in amounts due stockholder - 30,400
Issuance of Common stock 60,500 -
Repayments of short-term borrowings (10,000) (30,000)
--------- ---------
Net cash provided by financing activities 628,690 348,657
--------- ---------
NET DECREASE IN CASH (99,916) (15,357)
CASH, beginning of period 107,531 16,975
--------- ---------
CASH, end of period $ 7,615 $ 1,618
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
6
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Six Months Ended January 31,
----------------------------
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Cash paid for interest $84,600 $62,514
======= =======
Cash paid for income taxes $ 0 $ 0
======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING AND FINANCING ACTIVITIES:
During the first quarter of 1998, 114,000 shares of Common Stock were issued in
exchange for the cancellation of a $50,000 liability for endorsement fees and a
$10,500 liability for short-term borrowings and accrued interest.
During the first quarter of 1998, 12,500 shares of Series A Convertible
Preferred Stock were converted into 12,500 shares of Common Stock.
The accompanying notes are an integral part
of these consolidated financial statements
7
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JANUARY 31, 1998
----------------
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include the
accounts of Grip Technologies, Inc. and its subsidiary (the Company). All
significant intercompany transactions have been eliminated. In the opinion
of the Company's Management, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Company's
consolidated financial position at January 31, 1998 and the consolidated
results of operations and cash flows for the quarters and six months ended
January 31, 1998 and 1997 have been included. The Company's fiscal year
ends on July 31. References made throughout these notes to consolidated
financial statements to a year without a direct reference to a quarter are
references to the entire fiscal year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules of the
United States Securities and Exchange Commission (SEC). These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes to consolidated financial
statements for the year ended July 31, 1997 included as part of the
Company's Annual Report on Form 10-K (File No. 0-8485) filed with the SEC
on November 13, 1997.
The consolidated results of operations for the quarter and the six months
ended January 31, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. Net Loss Per Share Information
------------------------------
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." The new standard requires presentation of two
new amounts, basic and diluted earnings per share. The company was
required to retroactively adopt this standard and restate EPS for all prior
periods presented in this quarter ended January 31, 1998.
Basic loss per share was computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the periods
presented. Potential common shares for the periods presented were not
included in the net loss per share calculations as they were antidilutive.
Accordingly, there was no difference in basic and diluted earnings per
share. Similarly, there was no change to prior periods upon the adoption of
SFAS No. 128.
3. Going Concern
-------------
The Company has incurred significant net losses since its inception (August
1, 1993). As of January 31, 1998, the accumulated deficit was $8,573,268
and the stockholders' deficit was $1,711,853. The net loss for the six
months of 1998 was $773,229. For the three years ended July 31, 1997, 1996
and 1995 the net loss was $1,391,541, $1,574,981 and $3,444,745,
8
<PAGE>
respectively. From July 31, 1997 through January 31, 1998, the working
capital deficit increased $618,379 to $2,399,823. The net cash used in
operating and investing activities was $728,606 for the first two quarters
of 1998. The net cash used in operating and investing activities was
$777,699, $1,996,373 and $2,307,080 in 1997, 1996 and 1995, respectively.
These factors, among others, raise substantial doubt about the Company's
ability to continue as a going concern. In order to provide working
capital to support its operations, the Company has raised funds through
trade credit, stock issuances and additional borrowings, including loans
from the Company's President, who is also a major stockholder (the
President).
The ability of the Company to meet its existing and ongoing obligations is
dependent upon raising additional capital from sources of funding, such as
private placements, public offerings, a merger or banks and other lenders.
The Company is currently pursuing all possible avenues it can identify to
obtain additional funding. The Company has retained the services of an
investment banking firm to advise and assist the Company regarding
financing alternatives, as well as potential mergers and acquisitions.
However, there can be no assurances that any of these transactions may be
consummated in a timely manner or on terms reasonably acceptable to the
Company. The Company plans to continue to develop and implement cost
effective strategies it believes will increase sales and gross margins,
reduce other operating expenses and eventually lead to profitability.
However, the Company continues to incur losses. The ability of the Company
to continue as a going concern is dependent on obtaining adequate financing
and ultimately achieving profitable operations. The accompanying
consolidated financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.
4. Financing Activities and Subsequent Events
------------------------------------------
Since August 1, 1997, the President has loaned the Company $610,000 for
operating funds in exchange for promissory notes secured by certain assets
of the Company. Under the terms of the promissory notes, the President is
currently entitled to demand repayment of the entire amount. The
promissory notes bear interest at 10% which is being accrued.
In October 1997, the Company granted to certain officers and employees,
stock options to purchase a total of 320,000 shares of Common Stock. The
exercise price of the options is $0.4375 per share. In November 1997, the
Company granted to certain directors, stock options to purchase a total of
220,000 shares of Common Stock. The exercise price of the options is
$0.5625 per share. The options vest over three years and expire in
November 2002. Both exercise prices reflect the fair market value of the
shares on the respective dates of the grants.
In November 1997, the Company issued to the President a warrant to purchase
250,000 shares of Common Stock. The exercise price of the warrant is
$0.5625 per share. The warrant has a term of five years.
In November 1997, the Company issued to an investment banking firm a
warrant to purchase up to 600,000 shares of Common Stock. The exercise
price of the warrant is $1.50 per share. The warrant, a portion of which
is performance based, has a term of five years and vests over two years.
The warrant also includes certain anti-dilution provisions.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read together with the
consolidated financial statements and notes to consolidated financial statements
included elsewhere in this Report.
Forward-Looking Statements
- --------------------------
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. Such statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to republish revised forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the Company in
this Report, as well as the Company's other periodic reports on Forms 10-K, 10-Q
and 8-K filed with the Securities and Exchange Commission. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include, but are not limited to, those factors set forth under the caption
"Liquidity and Capital Resources" and "Notes to Consolidated Financial
Statements" included in this Report.
Financial Condition and Results of Operations
- ---------------------------------------------
The Company incurred a net loss of $352,507 or $0.06 per common share, during
the second quarter of 1998 compared to a net loss of $310,502 or $0.05 per
common share for the second quarter of 1997. While certain operating expenses
have been significantly reduced, lower net sales, delays in finishing tooling,
product processing inefficiencies, rework costs and higher labor costs
contributed significantly to the net loss. Also, interest expense increased
$28,067, or 54%, in the second quarter of 1998 compared to the second quarter of
1997, as a result of additional borrowings by the Company to fund operations.
Net sales for the second quarter of 1998 were $1,062,000, a 4% decrease compared
with net sales of $1,107,808 for the second quarter of 1997. Sales during the
second quarter of 1998 to Cobra Golf (Cobra) were $692,098, or 65% of net sales.
This is $94,446 less than sales to Cobra during the second quarter of 1997,
which were $786,554, or 71% of net sales.
Cost of sales for the second quarter of 1998 was $784,709, or 74% of net sales
compared to $880,790, or 79% of net sales for the second quarter of 1997. Lower
net sales negatively affected the per unit fixed production costs. Also, the
Company experienced labor inefficiencies due to many factors, including delays
in obtaining the required tooling for Cobra's new grip, rework activities and
increased hourly rates for employees and temporary labor. The Company also
incurred higher than normal costs on purchases of the new Cobra golf grips from
its supplier as a result of the tooling delays. Grip costs have returned to
historical levels as the appropriate tooling has been completed and production
is now at more efficient levels.
Operating expenses for the second quarter of 1998 were $550,036 compared to
$499,170 for the second quarter of 1997. Selling expenses for the second quarter
of 1998 were $145,742, down from
10
<PAGE>
$164,885, or 12% from th e second quarter of 1997. Depreciation expense
increased to $109,225 or 5% over the second quarter of 1997 as more tooling was
purchased for new sales orders. The company redirected its sales and marketing
efforts to the replacement market. The Company has focused more on its marketing
partnerships with catalog resellers such as Golfsmith, the world's largest
reseller of golf club components. During the third quarter of 1997, the Company
also initiated a new distributor program to increase replacement market sales to
retailers and other non-OEM customers. Management believes that these programs
will enable the Company to ultimately increase sales to the replacement market
while incurring less expense and risk related to servicing the replacement
market directly. Significant benefits from these programs are not expected until
1998.
Liquidity and Capital Resources
- -------------------------------
The Company had a significant working capital deficit of $2,399,882 at January
31, 1998. The working capital deficit at July 31, 1997 was $1,781,444. In
addition, the stockholders' deficit at January 31, 1998 was $1,711,853 compared
to $999,124 at July 31, 1997. The $618,438 increase in working capital deficit
is directly attributable to the cash used in operating activities and
investments in property and equipment (tooling). Since the beginning of 1995,
the Company has borrowed, from various sources, approximately $3,360,000 in
short-term borrowings, notes payable and long-term obligations, of which
approximately $716,000, including $535,000 of notes payable to the President,
has been converted into Common Stock. Also included in the $3,360,000 is
$610,000 loaned to the Company by the President since August 1, 1997 for
operating funds. During this same period, the Company received approximately
$3,700,000 in proceeds from the issuance of Common Stock through private
placements.
Included in current liabilities at January 31, 1998 is approximately $1,322,000
of long-term obligations due in 1998, which are personally guaranteed and/or
collateralized by the personal assets of the President. Also, at January 31,
1998, $1,206,996 and $243,048 of the Company's current liabilities were notes
payable and accrued liabilities, respectively, to the President and another
officer, who is also a stockholder. Of the $1,321,997 current portion of long-
term obligations, $1,180,000 is owed to a bank and matures on June 15, 1998.
Historically, the Company has been able to extend this obligation; however, to
date, the Company has not obtained any written commitment from the bank to
extend these loans past June 15, 1998, and no assurance can be given that the
obligations will be extended past June 15, 1998, or that the Company will be
able to obtain new loan commitments from another lender to repay the $1,180,000.
The notes payable to the stockholders permit the stockholders to demand
repayment at any time. Historically, the stockholders have obliged the Company
in deferring any amounts owed to them. However, the Company cannot ensure the
stockholders will continue to accept deferral of any amounts owed to them.
Additionally, the notes payable to stockholders bear interest at 10%.
Previously, the amounts owed to the stockholders, which were included in amounts
due stockholder and accrued liabilities, did not bear interest. The Company is
not expected to generate sufficient cash from operations necessary to repay
these obligations unless they are extended or otherwise deferred until such time
as cash from operations, if ever, is sufficient to repay these obligations. It
will be necessary to either extend the maturities, sell additional shares of the
Company's equity securities or obtain alternative financing to repay them.
As a result of cash flow constraints, compounded by the increased operating cash
flow deficit, the Company had to prioritize its payments to vendors, debt
holders and others. Management has identified payroll, rent, utilities and
certain office expenses, suppliers, tooling and certain debt holders as the most
critical obligations. While Management tries to maximize credit opportunities
through trade payables, its major vendors (i.e. the grip manufacturers) have
stringent payment requirements. Since June of 1997, the Company has agreed to
formalized payment arrangements with certain vendors for amounts owed to them in
the normal course of business, totaling
11
<PAGE>
approximately $100,000.
Historically, the Company's first two quarters have resulted in lower net sales
compared to the last two quarters of each fiscal year, corresponding with the
golf industry's selling season. This seasonality places additional strains on
liquidity, as the Company is required to invest in tooling and build inventories
during its first two quarters in order to meet spring delivery schedules. The
Company must also support the corresponding increase in receivables during the
initial portion of the prime selling season.
Management anticipates the Company will require additional funding of
approximately $350,000 through August 1, 1998 in addition to the $610,000 loaned
to the Company since July 31, 1997 by the President to fund operating losses and
projected tooling requirements. In addition, if existing debt obligations can
not be extended or otherwise deferred, additional fundings of approximately
$1,200,000 will be necessary by July 31, 1998. Furthermore, Management
estimates that the Company would require an additional $500,000 through 1998
and beyond to make the appropriate investments in machinery, marketing and
advertising, research and development it deems necessary to effectively compete
with the Company's key competitors.
In November 1997, the Company retained the services of an investment banking
firm to advise and assist the Company regarding financing alternatives and
potential mergers and acquisitions. As a result, the Company is currently
pursuing a private placement through the investment banking firm. The Company
will continue to identify and pursue other opportunities to meet these
requirements. The Company is also seeking to obtain concessions and/or deferred
payment plans from vendors on amounts owed. Additional bank financing is not
expected to be an option unless credit enhancements, such as guarantees, are
available, or until such time the Company has at least one fiscal quarter of
profitability. None of these sources or alternatives may be available to the
Company and, if they become available, may not occur within the time frame
required by the Company or may require terms which Management finds
unacceptable. The continued losses, the existing debt obligations due in 1998
and the need for additional capital raises substantial doubt about the Company's
ability to continue operating as a going concern.
12
<PAGE>
PART II
Item 1. Legal Proceeding
On December 18, 1997, Registrant and Sam G. Lindsay ("Lindsay") were
served with a summons and complaint by Donald Poulin ("Poulin") and Don and
Olivine Associates, Inc. (formerly Poulin Progrip, Inc.) ("PPG") in an action
filed in the Los Angeles County Superior Court. The complaint seeks damages
related to claims arising out of the original acquisition by Restraint of
certain assets from PPG and obligations of Registrant to pay Poulin and PPG
consulting fees and compensation for non-competition covenants. The amount
alleged to be owed is $271,000. Poulin and PPG also claim that Registrant
improperly disposed of certain equipment which collateralized Registrant's
obligation to pay the consulting and covenant fees. In addition, Poulin seeks to
perfect his rights to 100,000 shares of Registrant's stock which were pledged
to him by Lindsay as part of the acquisition transaction to secure payment of
the consulting and covenant amounts.
As of February 11, 1998, Registrant, Lindsay, Poulin and PPG entered
into a written Settlement Agreement pursuant to which the action has been
settled, on a conditional basis, upon payment by Registrant of $25,000 to Poulin
and an agreement by Registrant to pay Poulin an additonal $175,000 from the
proceeds of a private placement. As part of the settlement, Poulin and PPG have
dismissed the action, without prejudice, with the right to refile the action if
Registrant has not paid off the additional $175,000 by September 30, 1998.
Item 2. Changes in Securities
In November 1997, the Company granted to certain directors, stock
options to purchase a total of 220,000 shares of Common Stock. The exercise
price of the options is $0.5625 per share, the fair market value of the shares
on the date of the grant. The options are fully vest and expire in November
2002.
In November 1997, the Company issued to the President a warrant to
purchase 250,000 shares of Common Stock. The exercise price of the warrant is
$0.5625 per share. The warrant is fully vested and has a term of five years.
In November 1997, the Company issued to an investment banking firm a
warrant to purchase up to 600,000 shares of Common Stock. The exercise price of
the warrant is $1.50 per share. The warrant, a portion of which is performance
based, has a term of five years and vests over two years. The warrant also
includes certain anti-dilution provisions.
Item 4. Submission of Matters to Vote of Security Holders
On December 19, 1997, Registrant held its annual meeting of
shareholders. At the meeting, Sam G. Lindsay, James E. McCormick III, David W.
Hardee, Luther H. Hodges, Jr. and Geoffrey S.P. Madden were elected as directors
of Registrant. The votes for each nominee were as follows:
13
<PAGE>
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
Sam G. Lindsay 4,150,954 0 46,011
James E. McCormick, III 4,150,954 0 46,011
David W. Hardee 4,150,731 0 46,234
Luther H. Hodges, Jr. 4,150,731 0 46,234
Geoffrey S.P. Madden 4,150,731 0 46,234
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
2.1 Agreement and Plan of Reorganization, dated September 20,
1995, by and among Registrant, USG Acquisition Corporation and
USGRIPS, Inc., as amended - incorporated by reference from
Exhibit 2.1 to Registrant's Form 10-K for its fiscal year
ended July 31, 1996
3.1(i) Restated Articles of Incorporation of Registrant -
incorporated by reference from Exhibit 3.1(i) to Registrant's
Form 10-K for its fiscal year ended July 31, 1996
3.1(ii) Amended and Restated Bylaws of Registrant - incorporated by
reference from Exhibit 3.1(ii) to Registrant's Form 10-K for
its fiscal year ended July 31, 1996
4.1 Promissory Note, dated December 10, 1993, made payable by
Registrant to Kwang Soo Kim and In Ho Kim in the original
principal sum of $50,000 - incorporated by reference from
Exhibit 4.1 to Registrant's Form 10-K for its fiscal year
ended July 31, 1996
4.2 Loan documents for $780,000 loan from Wells Fargo Bank,
including Loan Commitment Note, dated January 14, 1997;
Addendum to Promissory, dated February 12, 1997; Third Party
Security Agreement: Securities Account, dated January 14,
1997; Addendum to Third Party Security Agreement: Securities
Account, dated February 12, 1997; and Securities Account
Control Agreement, dated February 12, 1997; and Securities
Account Control Agreement, dated February 14, 1997 -
incorporated by reference from Exhibit 4.1 to Registrant's
Form 10-Q for its fiscal quarter ended April 30, 1997
4.3 Loan extension letter, dated September 15, 1997, to Registrant
from Wells Fargo Bank extending that certain $780,000
Promissory Note included in Item 4.2 above - incorporated by
reference from Exhibit 4.3 to Registrant's Form 10-K for its
fiscal year ended July 31, 1997
4.4 Revolving Line of Credit Note, dated September 23, 1996, made
payable by Registrant to Wells Fargo Bank N.A. in the original
principal sum of $400,000 - incorporated by reference from
Exhibit 4.4 to Registrant's Form 10-K for its fiscal year
ended July 31, 1996
14
<PAGE>
4.5 Loan extension letter, dated September 15, 1997, to Registrant
from Wells Fargo Bank extending that certain $400,000
Revolving Line of Credit Note included in Item 4.4 above -
incorporated by reference from Exhibit 4.5 to Registrant's
Form 10-K for its fiscal year ended July 31, 1997
4.6 Secured Promissory Note, made payable by Registrant to Sam G.
Lindsay in the following amounts on the following dates -
incorporated by reference from Exhibit 4.6 to Registrant's
Form 10-K for its fiscal year ended July 31, 1997:
$ 100,000 July 31, 1997 or thereafter on demand
$ 100,000 September 19, 1997, or thereafter on demand
$ 50,000 October 16, 1997, or thereafter on demand
$ 200,000 October 20, 1997, or thereafter on demand
$ 50,000 November 7, 1997, or thereafter on demand
$ 50,000 November 28, 1997, or thereafter on demand
$ 50,000 December 15, 1997, or thereafter on demand
$ 50,000 December 18, 1997, or thereafter on demand
$ 10,000 December 19, 1997, or thereafter on demand
$ 50,000 January 31, 1998, or thereafter on demand
$ 90,000 February 20, 1998, or thereafter on demand
4.7 Promissory Note, dated July 31, 1997, made payable by
Registrant to Sam G. Lindsay in the principal amount of
$421,679 -incorporated by reference from Exhibit 4.7 to
Registrant's Form 10-K for its fiscal year ended July 31, 1997
4.8 Convertible Promissory Note, dated March 12, 1997, made
payable by Registrant to the Caroline Companies LLC in the
principal amount of $137,500 and accrued interest of $4,726 -
incorporated by reference from Exhibit 4.8 to Registrant's
Form 10-K for its fiscal year ended July 31, 1997
4.9 Convertible Note issued by Registrant in May 1997 to the
following lenders in the following amounts -incorporated by
reference from Exhibit 4.9 to Registrant's Form 10-K for its
fiscal year ended July 31, 1997:
$ 21,000 Z-Fund, a Maryland limited partnership
$ 500,000 Third Century II, a Colorado general partnership
4.10 Promissory Note, dated July 31, 1997, made payable by
Registrant to James E. McCormick III in the principal amount
of $195,281.02 - incorporated by reference from Exhibit 4.10
to Registrant's Form 10-K for its fiscal year ended July 31,
1997
10.1 1994 Stock Option Plan - incorporated by reference from
Exhibit 10.1 to Registrant's Form 10-K for its fiscal year
ended July 31, 1996
10.2 Amendment No. 1 to Stock Option Plan - incorporated by
reference from Exhibit 10.8 to Registrant's Form 10-Q for its
fiscal quarter ended January 31, 1997
10.3 Noncompetition Agreement, dated September 22, 1995, between
Registrant and J. Barrie Ogilvie - incorporated by reference
from Exhibit 10.3 to Registrant's Form 10-K for its fiscal
year ended July 31, 1996
15
<PAGE>
10.4 Security Agreement, dated July 31, 1995, between Registrant
and Sam G. Lindsay - incorporated by reference from Exhibit
10.4 to Registrant's Form 10-K for its fiscal year ended July
31, 1996
10.5 Amendment No. 1 to Security Agreement, dated July 31, 1997,
between Registrant and Sam G. Lindsay - incorporated by
reference from Exhibit 10.5 to Registrant's Form 10-K for its
fiscal year ended July 31, 1997
10.6 Request to Convert and Investment Letter, dated July 31, 1996,
between Registrant and Sam G. Lindsay - incorporated by
reference from Exhibit 10.6 to Registrant's Form 10-K for the
fiscal year ended July 31, 1996
10.7 Agreement, dated September 22, 1995, between Registrant and
ARC Equipment, Inc. - incorporated by reference from Exhibit
10.7 to Registrant's Form 10-K for its fiscal year ended July
31, 1996
10.8 Employment Agreement, dated September 26, 1997, between
Registrant and Victor Afable - incorporated by reference from
Exhibit 10.8 to Registrant's Form 10-K for its fiscal year
ended July 31, 1997
10.9 Financial Advisor Agreement, dated November 14, 1997, and
Indemnification Agreement, dated November 14, 1997, between
Registrant and Christman, Peters & Madden - incorporated by
reference from Exhibit 10.9 to Registrant's Form 10-Q for its
quarter ended October 31, 1997
10.10 Warrant For the Purchase of Shares of Common Stock, dated
November 14, 1997, issued by Registrant to Christman, Peters &
Madden - incorporated by reference from Exhibit 10.10 to
Registrant's Form 10-Q for its quarter ended October 31, 1997
10.11 Stock Purchase Warrant, dated November 12, 1997, issued by
Registrant to Sam G. Lindsay
21.1 Subsidiaries of Registrant - incorporated by reference from
Exhibit 21.1 to Registrant's Form 10-K for its fiscal year
ended July 31, 1996
27 Financial data schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the Registrant's fiscal quarter
ended January 31, 1998
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Grip Technologies, Inc.
------------------------------
(Registrant)
Date: March 16, 1998 /s/ Sam G. Lindsay
------------------------------
Sam G. Lindsay
President,
Chief Executive Officer,
Chief Operations and Financial Officer, and
Chief Accounting Officer
17
<PAGE>
EXHIBIT 10.11
SERIES 1997-A
WARRANT NUMBER 1
GRIP TECHNOLOGIES, INC.
(A CALIFORNIA CORPORATION)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR A LAWYER'S
OPINION (WHICH MAY BE COUNSEL TO THE COMPANY) SATISFACTORY TO THE COMPANY
TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m., Pacific Time, November 12, 2002.
<PAGE>
SERIES 1997-A
WARRANT NUMBER 1
For the Purchase of 250,000 Shares of
Common Stock, No Par Value Per Share
GRIP TECHNOLOGIES, INC.
(a California corporation)
THIS CERTIFIES that, for value received, Sam G. Lindsay (the "Holder") as
registered owner of this Warrant, is entitled at any time or from time to time
at or after November 12, 1997, (the "Effective Date") and at or before 5:00
p.m., Pacific Time, November 12, 2002, but not thereafter, to subscribe for,
purchase and receive Two-Hundred-Fifty-Thousand (250,000) fully paid and
nonassessable shares of the common stock, no par value per share (the "Common
Stock"), of Grip Technologies, Inc., a California corporation (the "Company"),
at the price of $0.5625 per share of the Common Stock (the "Exercise Price")
upon presentation and surrender of this Warrant and upon payment of the Exercise
Price for such shares of the Common Stock to the Company or the Company's stock
transfer agent, if any; provided, however, that upon the occurrence of any of
the events specified in the Statement of Rights of Warrant Holders, a copy of
which is attached as Annex I hereto and by this reference made a part hereof,
the rights granted by this Warrant shall be adjusted as therein specified. Upon
exercise of this Warrant, the form of election hereinafter provided for must be
duly executed and the instructions for registration of the Common Stock acquired
by such exercise must be completed. If the subscription rights represented
hereby shall not be exercised at or before 5:00 p.m., Pacific Time, on November
12, 2002, this Warrant shall become and be void without further force and
effect, and all rights represented hereby shall cease and expire.
This Warrant may be assigned by the Holder in whole or in part to any
person or entity. Assignment shall be made by execution by the Holder of the
form of assignment hereinafter provided. In the event of any assignment made as
aforesaid, the Company or its stock transfer agent, upon request and upon
surrender of this Warrant by the Holder at the principal office of the Company
or at the office of the Company's stock transfer agent, if any, accompanied by
payment of all transfer taxes, if any, payable in connection therewith, shall
transfer this Warrant on the books of the Company and shall execute and deliver
a new Warrant or Warrants of like tenor to the appropriate assignee expressly
evidencing the right to purchase the aggregate number of shares of the Common
Stock purchasable hereunder or such portion of such aggregate number as shall be
contemplated by any such assignment.
This Warrant may be exercised or assigned in whole or in part. In the event
of the exercise or assignment hereof in part only, the Company shall cause to be
delivered to the holder a new Warrant of like tenor to this Warrant in the name
of the Holder evidencing the right of the Holder to purchase the number of
shares of the Common Stock purchasable hereunder as to which this Warrant has
not been exercised or assigned.
<PAGE>
Notwithstanding anything in this Warrant or the Warrant Annex to the
contrary, in no event shall this Warrant (or the shares of the Common Stock
issuable upon full or partial exercise hereof) be assigned, transferred, offered
or sold except in conformity with the Securities Act of 1933, as amended, and
applicable state laws.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
facsimile by its duly authorized officers and to be sealed in facsimile with the
seal of the Company this 12th day November, 1997. This Warrant is not valid
unless duly countersigned by the Company or the transfer agent, if any.
GRIP TECHNOLOGIES, INC.
[SEAL]
ATTEST: By: /s/ SAM G. LINDSAY
-------------------------
Sam G. Lindsay, President
By: /s/ JAMES E. McCORMICK III
---------------------------------
James E. McCormick III, Secretary
COUNTERSIGNED:
TRANSFER AGENT:
By:
---------------------------------
Authorized Signature
<PAGE>
Form to be Used to assign Warrant Number 1:
ASSIGNMENT
----------
(To be executed by the registered Holder
to effect a transfer of all or part
of the within Warrant)
FOR VALUE RECEIVED, __________________________ does hereby sell, assign and
transfer unto __________________________ the right to purchase _________ shares
of the Common Stock of the Company evidenced by the within Warrant, and does
hereby irrevocably constitute and appoint _____________________ as attorney to
transfer such right on the books of the Company with full power of substitution
in the premises.
DATED this ____ day of ______________, ____.
SIGNATURE:
------------------------------
Signature Guaranteed:
----------------------------------
************************
NOTICE: The signature to this form to assign must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever, and shall
be guaranteed by a bank, or by a trust company or by a firm having
membership on a registered national securities exchange or self
regulatory organization.
<PAGE>
Form to be used to exercise Warrant Number 1:
THE UNDERSIGNED hereby elects irrevocably to exercise the within Warrant
and to purchase____________________________________________________shares of
Common Stock of the Company called for thereby, and hereby makes payment of
$__________________ (at the rate of $0.5625 per share of the Common Stock) in
payment of the Exercise price pursuant thereto. Please issue the shares of
Common Stock as to which this Warrant is exercised in accordance with the
instructions given below.
DATED this _________ day of __________________, _____.
SIGNATURE:
----------------------------------------
Signature Guaranteed:
---------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK:
Name:
-------------------------------------
(Print in Block Letters)
Address:
----------------------------------
- ------------------------------------------
*************************
NOTICE: The signature to this form to assign must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever, and shall
be guaranteed by a bank, or by a trust company or by a firm having
membership on a registered national securities exchange or self
regulatory organization.
<PAGE>
ANNEX I
TO
WARRANT SERIES 1997-A
GRIP TECHNOLOGIES, INC.
STATEMENT OF RIGHTS OF WARRANT HOLDER
1. Exchange of Warrants.
--------------------
The Warrant, at any time prior to the exercise thereof, upon
presentation and surrender to Grip Technologies, Inc. (the "Company") or the
Company's transfer agent, may be exchanged, alone or with other Warrants of like
tenor registered in the name of the same owner, for another Warrant or Warrants
of like tenor in the name of such owner or permissible assignee, exercisable for
the same aggregate number of shares of Common Stock as the Warrant or Warrants
surrendered.
2. Purchase and Exercise of Warrant.
--------------------------------
(a) In case the owner shall desire to exercise the purchase
right evidenced by the Warrant, the owner shall surrender the Warrant with the
form of subscription attached thereto duly executed by the owner to the Company
at the principal office of the Company, attention of the President, or at the
office of the Company's transfer agent, accompanied by payment of the total
Exercise Price (hereinafter defined). The Warrant may be exercised in whole or
in part. In case of the exercise thereof in part only, the Company will deliver
to the owner a new Warrant of like tenor in the name of the owner evidencing the
right to purchase the number of shares as to which the Warrant has not been
exercised. Each certificate for Warrant Stock issued hereunder shall bear a
legend reading substantially as follows (unless the Company receives an opinion
of counsel satisfactory to it that such a legend is not required) in order to
assure compliance with the Securities Act of 1933, as amended (the "1933 Act"):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR A LAWYER'S OPINION (WHICH MAY BE
COUNSEL TO THE COMPANY) SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
(b) The Exercise Price per share of the Warrant Stock shall
be $0.5625 from the date of issue until November 12, 2002.
<PAGE>
3. Disposition of Warrants or Warrant Stock.
-----------------------------------------
(a) The Warrant and all Warrant Stock issued hereunder may be disposed
of by the registered owner(s) or by any subsequent owner(s) only upon compliance
with the terms and conditions set forth in paragraphs 3(b) through 3(c)(ii)
hereof.
(b) The registered owner(s) of the Warrant agree(s) that the Warrant
will not thereafter be the subject of an offering by use of the mails or
instrumentalities of interstate commerce unless it is registered under the 1933
Act and applicable state law or it is qualified for an exemption form such
registration requirements.
(c) The registered owner(s) of the Warrant, by acceptance thereof,
agrees for himself (themselves) and any subsequent owner(s) that before any
disposition is made of any Warrant or Warrant Stock, the owner(s) shall give
written notice to the Company describing briefly the manner of any such proposed
disposition. No such disposition shall be made unless and until:
(i) The Company has received an opinion from counsel for the
owner(s) of the Warrant or Warrant Stock stating that no registration under the
1933 Act is required with respect to such disposition; or
(ii) A Registration Statement or Notification pursuant to
Regulation A under the 1933 Act has been filed by the Company and made effective
by the Commission covering such proposed disposition.
4. Share Dividends, Reclassification, Reorganization, Antidilution
---------------------------------------------------------------
Provisions, Etc.
- ----------------
(a) If, prior to the expiration of the Warrant by exercise or by its
terms, the Company shall issue any of its shares of Common Stock as a share
dividend or subdivide the number of outstanding shares of Common Stock into a
greater number of shares of Common Stock, then the Exercise Price per share of
Common Stock purchasable pursuant to the Warrant in effect at the time of such
action shall be proportionately reduced and the number of shares at the time
purchasable pursuant to the Warrant shall be proportionately increased; and,
conversely, if the Company shall contract the number of outstanding shares of
Common Stock by combining such shares into a smaller number of shares, then, in
such case, the Exercise Price per share of the Common Stock purchasable pursuant
to the Warrant in effect at the time of such action shall be proportionately
increased and the number of shares at the time purchasable pursuant to the
Warrant shall be proportionately decreased. If the Company shall, at any time
during the life of the Warrant declare a dividend payable in cash on its shares
of Common Stock and shall at substantially the same time offer to its
shareholders a right to purchase new shares of Common Stock from the proceeds of
such dividend or for an amount substantially equal to the dividend, all shares
of Common Stock so issued shall, for the purpose of the Warrant, be deemed to
have been issued as a share dividend. Any dividend paid or distributed upon the
shares of Common Stock in shares of any other class of securities convertible
into shares of Common Stock shall be treated as a dividend paid in shares of
Common Stock to the extent that shares of Common Stock are issuable upon the
conversion thereof.
(b) If, prior to the expiration of the Warrant by exercise or by its
terms, the Company shall be recapitalized by reclassifying its outstanding no
par value shares of Common Stock into
2
<PAGE>
shares with a par value, or the Company or a successor corporation shall
consolidate or merge with or convey all or substantially all of its or of any
successor corporation's property and assets to any other corporation or
corporations (any such corporation being included within the meaning of the term
"successor corporation" used above in the event of any consolidation or merger
of any such corporation with, or the sale of all or substantially all of the
property of any such corporation with, or in the sale of all or substantially
all of the property of any such corporation to another corporation or
corporations), the holder of the Warrant shall thereafter have the right to
purchase, upon the basis and on the terms and conditions and during the time
specified in the Warrant, in lieu of the shares of Common Stock of the Company
theretofore purchasable upon the exercise of the Warrant, such shares,
securities or assets as may be issued or payable with respect to, or in exchange
for, the number of shares of Common Stock of the Company theretofore purchasable
upon the exercise of the Warrant had such recapitalization, consolidation,
merger, or conveyance not taken place, and in any such event, the rights of the
holder of the Warrant to an adjustment in the number of shares of Common Stock
purchasable upon the exercise of the Warrant as herein provided shall continue
and be preserved in respect to any shares, securities or assets which the holder
of the Warrant becomes entitled to purchase.
(c) If: (i) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend payable otherwise than in cash, or any other distribution in respect of
the shares of Common Stock (including cash), pursuant to, without limitation,
any spin-off, split-off or distribution of the Company's assets; or (ii) the
Company shall take a record of the holders of its shares of Common Stock for the
purpose of entitling them to subscribe for or purchase any shares of any class
or to receive any other rights; or (iii) in the event of any classification,
reclassification or other reorganization of the shares which the Company is
authorized to issue, consolidation or merger of the Company with or into another
corporation, or conveyance of all or substantially all of the assets of the
Company; or (iv) in the event of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, and in any such case, the
Company shall mail to the holder of the Warrant, at least thirty (30) days prior
thereto, a notice stating the date or expected date on which a record is to be
taken for the purpose of such dividend, distribution or rights, or the date on
which such classification, reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation, or winding up is to take place, as
the case may be. Such notice shall also specify the date or expected date, if
any is to be fixed, as to which holders of shares of Common Stock of record
shall be entitled to participate in such dividend, distribution or rights, or
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such classification, reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation, or
winding up, as the case may be.
(d) If the Company, at any time while the Warrant shall remain
unexpired and unexercised, shall sell all or substantially all of its property,
dissolve, liquidate, or wind up its affairs, the holder of the Warrant may
thereafter receive upon exercise thereof, in lieu of each share of Common Stock
of the Company which it would have been entitled to receive, the same kind and
amount of any securities or assets as may be issuable, distributable or payable
upon any such sale, dissolution, liquidation, or winding up with respect to each
share of Common Stock of the Company.
5. Reservation of Shares Issuable on Exercise of Warrants.
------------------------------------------------------
The Company will, at all times, reserve and keep available out of
its authorized shares, solely for issuance upon the exercise of the Warrant and
other similar Warrants, such number of
3
<PAGE>
shares of Common Stock and other shares as from time to time shall be issuable
upon the exercise of the Warrant and all other similar Warrants at the time
outstanding.
6. Loss, Theft, Destruction or Mutilation.
--------------------------------------
Upon receipt by the Company of evidence satisfactory to it (in the
exercise of its reasonable discretion) of the ownership of and the loss, theft,
destruction, or mutilation of the Warrant, the Company will execute and deliver,
in lieu thereof, a new Warrant of like tenor.
7. Warrant Holder Not a Shareholder.
--------------------------------
Any holder of the Warrant, as such, shall not be entitled by reason
of the Warrant to any rights whatsoever of a shareholder of the Company.
8. Mailing of Notices.
------------------
All notices and other communications from the Company to the holder
of the Warrant shall be mailed by first class, certified mail, postage prepaid,
to the address furnished to the Company in writing by the holder of the Warrant.
DATED this twelfth day of November, 1997.
Grip Technologies, Inc.
[SEAL]
ATTEST: By: /s/ Sam G. Lindsay
-------------------------
Sam G. Lindsay, President
By: /s/ James E. McCormick III
---------------------------------
James E. McCormick III, Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JANUARY
31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 7,615
<SECURITIES> 0
<RECEIVABLES> 419,333
<ALLOWANCES> 41,069
<INVENTORY> 634,556
<CURRENT-ASSETS> 1,081,258
<PP&E> 1,674,885
<DEPRECIATION> 976,714
<TOTAL-ASSETS> 2,704,984
<CURRENT-LIABILITIES> 3,481,081
<BONDS> 0
0
875,000
<COMMON> 5,986,415
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,704,984
<SALES> 1,062,000
<TOTAL-REVENUES> 1,062,000
<CGS> 784,709
<TOTAL-COSTS> 550,036
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,198
<INCOME-PRETAX> (352,107)
<INCOME-TAX> 400
<INCOME-CONTINUING> (352,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (352,507)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
