<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: September 30, 1997
[ ] 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 1-10368
PACIFIC INTERNATIONAL ENTERPRISES, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
NEVADA 88-0243669
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
4431 Corporate Center Drive
Suite 31
Los Alamitos, California 90720
(Address of principal executive offices)
Issuer's telephone number, including area code: (714) 816-0200
Check whether the issuer(1) filed all reports required to be filed by
Section 13 or 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
<TABLE>
<S> <C>
Title of Each Class Outstanding at September 30, 1997
- ------------------- ---------------------------------
Common stock, $.001 par value 11,531,850
</TABLE>
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
PACIFIC INTERNATIONAL ENTERPRISES, INC.
Form 10-QSB
INDEX
PAGE
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheet (Unaudited) as
of September 30, 1997.......................................... 4
Condensed Consolidated Statements of Operation (Unaudited)
for the three month periods ended
September 30, 1997 and 1996 and from inception
(February 28, 1995 to September 30, 1997)...................... 5
Condensed Consolidated Statements of Operation (Unaudited)
for the nine month periods ended
September 30, 1997 and 1996 and from inception
(February 28, 1995 to September 30, 1997)...................... 6
Condensed Consolidated Statements of Cash flows (Unaudited)
for the nine months ended September 30, 1997
and 1996 and from inception
(February 28, 1995 to September 30, 1997)...................... 7
Notes to Condensed Consolidated (Unaudited)
Financial Statements........................................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................14
Item 2. Changes in Securities..........................................14
Item 3. Default Upon Senior Securities.................................14
Item 4. Submission of Matters to a Vote of Security Holders............14
Item 5. Other Information..............................................14
Item 6. Exhibits and Reports on Form 8-K...............................15
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
3
<PAGE> 4
PACIFIC INTERNATIONAL ENTERPRISES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-----------
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and equivalents $ 3,058
Inventory 103,618
Prepaid expenses and other 151,819
-----------
Total current assets 258,495
EQUIPMENT 16,420
PATENTS AND TRADEMARKS 52,281
-----------
$ 327,196
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable $ 1,090,865
Accounts payable 289,191
Accrued interest 108,168
Other accrued expenses 138,109
-----------
Total current liabilities 1,626,333
-----------
SHAREHOLDERS' DEFICIT:
Preferred stock - 3,000,000 authorized, $.001 par value,
zero shares issued and outstanding --
Common stock - 50,000,000 shares authorized, $.001 par
value, 11,531,850 shares issued and outstanding 11,532
Additional paid-in capital 4,712,450
Deficit accumulated during the development stage (6,023,119)
-----------
Net shareholders' deficit (1,299,137)
-----------
$ 327,196
===========
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
PACIFIC INTERNATIONAL ENTERPRISES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
THREE MONTHS ENDED (FEBRUARY 28,
-------------------------------- 1995) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
------------- -------------- -------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Research and development (163,851) (16,662) (509,955)
General and administrative (429,167) (254,360) (3,083,389)
Interest (16,424) (35,799) (192,064)
----------- ----------- -----------
(609,442) (306,821) (3,785,408)
----------- ----------- -----------
Non-cash expenses related to issuance of
common stock and equivalents:
Consulting (93,087) -- (1,247,773)
Compensation (28,400) -- (254,600)
Interest (71,187) -- (420,876)
----------- ----------- -----------
(192,674) -- (1,923,249)
----------- ----------- -----------
NET LOSS $ (802,116) $ (306,821) $(5,708,657)
=========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.10) $ (0.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 7,758,665 10,796,728
=========== ===========
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
PACIFIC INTERNATIONAL ENTERPRISES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
NINE MONTHS ENDED (FEBRUARY 28,
-------------------------------- 1995) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
------------- -------------- -------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Research and development (371,523) (33,243) (509,955)
General and administrative (883,610) (817,607) (3,083,389)
Interest (63,593) (92,677) (192,064)
----------- ----------- -----------
(1,318,726) (943,527) (3,785,408)
----------- ----------- -----------
Non-cash expenses related to issuance of
common stock and equivalents:
Consulting (805,227) (292,000) (1,247,773)
Compensation (85,200) (135,000) (254,600)
Interest (213,561) (90,143) (420,876)
----------- ----------- -----------
(1,103,988) (517,143) (1,923,249)
----------- ----------- -----------
NET LOSS $(2,422,714) $(1,460,670) $(5,708,657)
=========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.33) $ (0.15)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES 7,399,172 9,688,931
=========== ===========
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
PACIFIC INTERNATIONAL ENTERPRISES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
NINE MONTHS ENDED (FEBRUARY 28,
-------------------------------- 1995) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,422,714) $(1,460,670) $(5,708,657)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 29,232 7,220 173,659
Issuance of shares for compensation -- 363,804 454,499
Non-cash interest expense 213,561 90,143 420,876
Non-cash consulting expense 805,227 292,000 1,247,773
Non-cash compensation expense 85,200 135,000 254,600
Provision for loss of investment 250,000 -- 0
(Increase) decrease in assets:
Restricted cash 75,000 8,500 0
Prepaid expenses -- (19,568) (89,568)
Inventory (242) (77,380) (103,618)
Other 13,382 (12,990) (12,990)
Patents and trademarks (12,493) (13,153) (57,760)
Increase (decrease) in liabilities:
Accounts payable 67,264 111,565 337,430
Accrued expenses (52,319) 67,446 246,277
----------- ----------- -----------
Net cash used by operating activities (948,902) (508,083) (2,837,479)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (45,791) -- (137,581)
Investment in subsidiary (250,000) -- 0
----------- ----------- -----------
Net cash used by investing activities (295,791) -- (137,581)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable -- 295,000 1,793,750
Payments on notes payable (469,528) -- (469,528)
Exercise of warrants and options 44,880 40 57,312
Issuance of common stock 1,028,752 200,000 1,596,584
----------- ----------- -----------
Net cash provided by financing activities 604,104 495,040 2,978,118
----------- ----------- -----------
Net increase (decrease) in cash (640,589) (13,043) 3,058
CASH, BEGINNING OF PERIOD 659,010 16,101 0
----------- ----------- -----------
CASH, END OF PERIOD $ 18,421 $ 3,058 $ 3,058
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Conversion of notes payable to common stock $ 225,750 $ -- $ 233,357
----------- ----------- -----------
Issuance of shares in debt swap $ -- $ 97,500 $ 97,500
----------- ----------- -----------
Assets acquired through issuance of common stock $ -- $ -- $ 47,019
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 8
PACIFIC INTERNATIONAL ENTERPRISES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
September 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Crush Innovative Sports Systems, Inc. ("Crush" or the "Company"), a
California corporation, was formed on February 28, 1995 for the purpose
of developing, marketing and selling innovative sports products
incorporating proprietary technology. Crush was formed by
Laurence/Wayne, Inc. ("L/W"), a research and development company
organized in May 1989 to create innovative fastening systems intended
for use in the systems of numerous sporting goods, including snowboard
bindings, backpacks and in-line skates. In 1994, L/W developed a unique
snowboard binding system, the "T-Bone". On February 28, 1995 L/W
contributed to Crush all rights to the T-Bone binding system and for the
application of its fastening system to backpacks, motorcycle saddlebags,
in-line skates and other sporting goods, certain assets and research and
development. The value of the consideration was $361,481, equal to the
historical costs incurred by L/W, allocated $47,019 to equipment and
other assets and $314,462 to research and development. In reaching this
determination, the company considered, among other factors, the stage of
development, the time and resources needed to complete the products,
expected income and associated risks. Crush is classified as a
development stage company because its principal activities involved
obtaining capital, business development, obtaining rights to certain
technology and conducting research and development activities.
Pacific International Enterprises, Inc., a Nevada corporation ("PIE"),
was formed on December 30, 1988. From inception until October 1995, PIE
was inactive and operated no business and held no significant assets.
Effective October 12, 1995, PIE exchanged 798,927 of its common stock
for all of the outstanding common stock of Crush. This transaction was a
reverse acquisition whereby PIE was the legal survivor; however, the
accounting reflects Crush as the survivor since Crush, as the operating
entity, was in effect the real acquirer. The transaction was accounted
for as a purchase of PIE by the Company and, accordingly, the
accompanying financial statements include the amounts and operations of
the Company from its inception and of PIE from October 12, 1995.
Principles of consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries, Crush Innovative Sports Systems,
Inc. and PIE Acquisition Corp. PIE Acquisition Corp. is currently
inactive. All significant intercompany transactions and balances have
been eliminated in consolidation.
8
<PAGE> 9
PACIFIC INTERNATIONAL ENTERPRISES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interim Periods
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not
include all of the information required by generally accepted accounting
principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30, 1997
are not necessarily indicative of results for any future period. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10-KSB for
the year ended December 31, 1996. Certain adjustments have been made to
the comparative information for 1996 to conform to the presentation used
in the December 31, 1996 10-KSB.
2. EMPLOYMENT AGREEMENTS
The Company entered into three employment agreements with Company
executives in June 1997, all under substantially similar terms. The five
year agreements provide for annual base salaries of $115,200, payable in
cash or shares of common stock, with minimal annual increases of 20%.
Acquisition performance bonuses are to paid upon the occurrence of
certain events. The acquisition performance bonuses shall equal 3% of
the purchase price up to $2 million and 2% of the purchase price over $2
million upon signing an agreement to acquire either substantially all of
the assets or voting stock of a company. The same percentages of the
purchase price will be paid upon closing of such an acquisition.
Notwithstanding the percentages stated above, a minimum of $100,000
shall be payable to each executive upon signing an acquisition agreement
and $100,000 upon closing the acquisition. However, should the Company
be unable to pay the bonus in cash during the first year of the
agreement, the executives may choose that the bonus be paid in shares of
common stock of the Company.
On each anniversary of the date of the agreements, the Company will
grant 200,000 options to each executive to purchase common stock at an
exercise price of $.19, expiring in ten years. Among other benefits, the
Company will provide four weeks of paid vacation in the first year and
six weeks of paid vacation for each year thereafter; medical and dental
coverage; life insurance and annual disability payments in an amount
equal to 125% of base salary.
The Company entered into a three year employment agreement with another
Company executive in June 1997. It provides for a base salary of $96,000
annually, payable in cash or shares of common stock. Benefits include
three weeks of paid vacation in the first year and four weeks of paid
vacation for each year thereafter; medical and dental coverage; life
insurance and annual disability payments in an amount equal to 125% of
base salary.
9
<PAGE> 10
PACIFIC INTERNATIONAL ENTERPRISES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
3. CAPITAL AND FINANCING TRANSACTIONS
Common stock
In June 1997, the Company sold in a private placement 1,142,858 shares
of common stock at a price of $.175 per share. In connection with this
private placement memorandum, the Company issued 1,142,858 warrants to
purchase common stock at an exercise price of $.50, which approximated
fair market value, expiring in three years.
In the third quarter of 1997, the Company issued 1,237,220 shares of
common stock at the current market price for services rendered.
Warrants
In connection with an August 1995 private placement memorandum, Crush
issued notes payable totaling $1,423,750. These notes bear interest at
9%, payable quarterly and are due the earlier of (i) the closing of a
private placement or public offering of equity securities or (ii) the
first anniversary of the issuance of the notes. The Company may prepay
the notes at any time without penalty. The notes are secured by the
assets of the Company. At any time prior to maturity, the notes are also
convertible into shares of the Company's common stock at a price equal
to 70% of the closing bid price of the Company's common stock on the
date of conversion but not less than $0.95 per share. In connection with
this private placement memorandum, the Company issued 1,423,750 Class A
Warrants (the "A Warrants") and 1,423,750 Class B Warrants (the "B
Warrants") to purchase shares of common stock at exercise prices of $.05
and $.95, respectively. On the same terms, the Company also issued to
registered broker-dealers an aggregate of 141,750 A Warrants and 141,750
B Warrants. The Warrants are exercisable for a period of three years. In
the event the Company does not repay the notes payable described above
in full within six months of the date of investment, then the exercise
price of the B Warrants will automatically decrease at a rate of $.04
per month, commencing in the seventh month after the date of the note,
but not below $.50. The warrants are callable by the Company upon 60
days written notice to the holders in the event of either (i) the ask
price of the Company's common stock exceeds $2.00 for any period of 60
consecutive days or (ii) the notes are paid in full or converted into
common stock. If not exercised within such 60-day period, the warrants
automatically expire. The Company assigned a value of $313,100 to the
detachable warrants described above. This amount was amortized as
discount on the notes over twelve months. At September 30, 1997, 478,750
A Warrants had been exercised. During 1996, notes payable of $233,357
were converted into 183,482 shares of common stock, and $469,528 were
paid off. On September 30, 1996, the remaining noteholders agreed to
extend the maturity date of the notes to March 31, 1997, and the Company
issued them warrants to purchase 735,724 shares of common stock at an
exercise price of $1.00 expiring on September 30, 1999. At September 30,
1997, none of these warrants had been exercised. The remaining notes
totaling $720,865 are in default.
10
<PAGE> 11
PACIFIC INTERNATIONAL ENTERPRISES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
3. CAPITAL AND FINANCING TRANSACTIONS (CONTINUED)
Warrants (continued)
In December 1996, the Company offered in a private placement $120,000
promissory notes, of which $75,000 were issued in 1996 and the remainder
in the first quarter of 1997. The notes bear interest at 10% and
principal and accrued interest are due ninety days from the date of
issuance. Warrants to purchase 15,000 shares of common stock at an
exercise price of $.01 and warrants to purchase 22,500 shares of common
stock at an exercise price of $1.00, both expiring in December 2001,
were issued with the notes issued in 1996. Warrants to purchase 9,000
shares of common stock at an exercise price of $.01 and warrants to
purchase 13,500 shares of common stock at an exercise price of $1.00,
also expiring in December 2001, were issued with the notes issued in
1997. The fair value allocated to the warrants of $11,760 represents
unamortized warrant cost that was amortized in the first quarter of
1997. At September 30, 1997, 4,000 warrants were exercised at a price of
$.01. As incentive to extend the maturity date of the notes to June 30,
1997, the Company issued 120,000 warrants to purchase common stock at an
exercise price of $.10. The $32,400 value assigned to the warrants was
recorded as unamortized warrant cost that was amortized in the second
quarter of 1997. At September 30, 1997, none of these warrants had been
exercised. The notes are currently in default. The Company issued
400,000 shares of common stock to the underwriter as agent for the
noteholders as collateral to secure the notes against default. The
$120,000 value assigned to the shares was recorded as unamortized
capital stock that was also amortized in the first quarter of 1997.
Options
In connection with the three employment agreements described in Note 2,
the Company issued 1,500,000 options to purchase common stock at an
exercise price of $.10, expiring in ten years. The $135,000 value
assigned to the options was recorded as non-cash compensation expense in
the second quarter. In accordance with another employment agreement also
described above, the Company issued 500,000 options to purchase common
stock at an exercise price of $.19, which approximated fair market
value, expiring in three years.
4. NOTES PAYABLE
In January 1997, the Company issued a convertible note in the amount of
$250,000. The note bears interest at 10% and had an original maturity
date of ninety days. The note was subsequently extended for an
additional nine months. At any time prior to maturity, the note is
convertible into shares of the Company's common stock at the current
market price, in the amount that equals the total amount due in
principal, interest and late charges. Options to purchase 150,000 shares
of common stock were issued with the convertible note at an exercise
price of $.50. At the time the note and the options were issued, the
approximate fair value of the Company's common stock was $.31.
Accordingly, no value was attributed to the options. Subsequent to
September 30, 1997, the noteholder converted the note into 2.4 million
shares of common stock and 2.4 million warrants to purchase common stock
exercisable at a price of $.50.
11
<PAGE> 12
PACIFIC INTERNATIONAL ENTERPRISES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
5. SUBSEQUENT EVENT
On October 1, 1997, the Company acquired the assets of MicroSki, Ltd.
("MSK") for 800,000 shares of common stock. The assets include tooling,
plant and equipment, fixtures and fittings, inventories, all sales
orders on hand, bank and cash balances and intellectual properties
including all patents and trademarks. MSK is a producer of quality
miniskis and will operate as a division of the Company. As of November
1, 1997, $302,000 of the orders in hand have been delivered to customers
and will be reflected in the Company's results for the final quarter of
1997.
During October 1997, the Company obtained a further patent in respect of
snowboot application and secured a patent filing in respect of the
Company's new Stealth Binding.
6. GOING CONCERN
The Company is experiencing cash flow shortages and will need to raise
additional capital in order to continue operations. To date in 1997, the
Company has entered into loans in the amount of $250,000 and raised
equity in the amount of $200,000. These amounts have sustained
operations to date and the Company currently has commitments for an
additional $100,000 in exchange for equity. The Company has also
recently acquired receivable and production financing approximating
$700,000 to cover the production and sale of 4,000 units to fulfill
existing orders. Such financing is anticipated to be available on an
order by order basis for future production and sales requirements.
However, such financing will not be available to satisfy the potential
shortfall in capital requirements. There can be no assurance that the
Company will be able to raise funds through sales of additional equity.
Without such additional funds, there is substantial doubt about the
ability of the Company to continue as a going concern.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is a development stage company that has devoted substantially
all of its resources to the development and commercialization of its
proprietary fastening technologies and products. The Company has focused its
initial efforts on developing and marketing the "T-Bone" system for snowboards
and the "Roc-Lock(TM)" technology for other commercial uses. These initial
efforts primarily consisted of research and development activities (including
prototype manufacturing, testing and customer pilot trials), developing
consumer and retailer awareness of the products and, more recently, entering
into sales orders with large retail sporting goods chains. Pending commercial
deployment of and related volume orders during the final quarter of 1997 for
the Company's products, the Company expects to incur additional losses.
The Company entered into a letter of intent in 1995 to merge
Laurence/Wayne, Inc. ("L/W") into the Company such that L/W will become an
operating subsidiary of the Company. As a result of the merger, the Company
would acquire all of the patents upon which its T-Bone snowboard binding and
other products depend. In the merger, the shares of Company Common Stock
currently held by L/W would be canceled, and new certificates will be issued
directly to the L/W shareholders. Thus, no dilution to existing shareholders of
the Company will occur. The merger has been approved by the shareholders of L/W
but is still subject to the approval of the Company's shareholders. Therefore,
there can be no guarantee that the merger will be consummated or consummated on
the terms of the letter of intent.
This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, the cost and availability of capital to finance
its operations, competition, and the growth of the snowboard market generally.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1996
Since its inception the Company has been a development stage enterprise,
and as such, has not yet generated operating revenues. Operating expenses during
the three months ended September 30, 1997 were $306,821 as compared to $802,116
(including $192,674 of noncash expenses related to stock and stock equivalent
transactions) for the three months ended September 30, 1996. This decrease in
expense was primarily due to lack of operating funds necessitating major
cutbacks in employees and operating activities.
NINE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1996
Operating expenses during the nine months ended September 30, 1997 were
$1,460,670 (including $517,143 of noncash expenses related to stock and stock
equivalent transactions) as compared to $2,422,714 (including $1,103,988 of
noncash expenses related to stock and stock equivalent transactions) for the
nine months ended September 30, 1996. This decrease in expenses was primarily
due to lack of operating funds necessitating major cutbacks in employees and
operating activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through the private sale of debt
and equity securities. The Company has raised approximately $3,583,895 from the
private sale of stock, the exercise of warrants and the issuance of debt
securities. In 1997 the Company has entered into loans in the amount of
$295,000 and raised equity
13
<PAGE> 14
capital in the amount of $200,000 to sustain operations. As of September 30,
1997, the Company had cash of approximately $3,058 and accounts payable of
approximately $289,191 (of which approximately $27,493 is due to officers of the
Company for expenses paid on behalf of the Company and approximately $112,000 is
due for professional services rendered). The Company estimates that the costs of
continuing operations through December 31, 1997 will be approximately $200,000.
The Company recently acquired letter of credit and factor financing facilities
totalling $700,000 to cover the production and sale of 4,000 units to fulfill
existing orders that will be delivered during the final quarter of 1997.
However, this financing will not be available to satisfy the shortfall in
capital and product development requirements. Every effort is being made to
manage overhead and expenses to a level that will not imperil the completion and
delivery of production and sales. The employees and officers of the Company have
agreed to take reduced or no cash salaries in exchange for equity in the
Company. In addition, the Company has been able to enter into long-term payment
plans with certain accounts payable. The Company does not currently have any
other commitments to raise additional funds. There can be no assurance that the
Company will be able to raise funds through sales of additional equity or obtain
further financing. Without such additional funds, there is substantial
uncertainty about the ability of the Company to continue as a going concern.
Net cash flows for the nine months ended September 30, 1997 was
approximately $(13,043).
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company had no new legal proceedings and there were no new developments
in the case of Chardas v Graval, currently pending in Los Angeles Superior Court
(as referenced in the Company's Form 10-KSB for the fiscal year ended December
31, 1996).
ITEM 2. CHANGES IN SECURITIES
NOT APPLICABLE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
In August, 1995, Crush Innovative Sports Systems, Inc. ("Crush") entered
into a private placement of debt in the amount of $1,423,750 with various
accredited investors. Crush became a subsidiary of the Company as a result of a
merger consummated in October, 1995. The Company has since repaid $469,528 of
the Notes, converted $233,357 of the Notes into the Company's Common Stock and
is currently in default on the remaining Notes. The amount in default is
$770,137 including $49,272 of interest accrued until September 30, 1997. The
noteholders have a security interest in all of the assets of Crush. No action
has yet been taken by such noteholders.
As of September 30, 1997, the Company is in default on $120,000 of Notes
given to various investors as part of a private placement in December, 1996. The
Notes bear interest at 10% and were originally due on March 31, 1997. The
Company subsequently issued warrants to the Noteholders as an incentive to
extend the maturity date of the Notes to June 30, 1997. The notes are in default
as of September 30, 1997. The amount owed on the Notes is approximately
$129,000, including $9,000 of interest. The Notes are secured by a pledge of
400,000 shares of the Company's Common Stock. No action has been taken by the
holders of the Notes to either assume beneficial ownership of the shares or to
pursue other remedies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders in the nine months ended
September 30, 1997.
ITEM 5. OTHER INFORMATION
On October 1, 1997 the Company acquired the assets of MicroSki, Ltd. for
800,000 shares of Common Stock of the Company. The assets included tooling,
plant and equipment, fixtures and fittings, inventories, all sales orders on
hand, bank and cash balances and intellectual properties including all patents
and trade marks. MicroSki is a producer of quality miniskis and will operate as
a division of the Company. As at November 11, 1997 $302,000 of the orders in
hand have been delivered to customers and will be reflected in the Company's
results for the final quarter of 1997.
14
<PAGE> 15
During October 1997 the Company obtained a further patent in respect of
snowboot application and filed a patent application with respect to the
Company's new Stealth Binding.
Also during October 1997 the holder of a $250,000 note payable converted
his debt into 2.4 million shares of Common Stock and 2.4 million warrants
exerciseable at a price of $0.50.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
27 - Financial Data Schedule
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, therefore duly authorized.
PACIFIC INTERNATIONAL ENTERPRISES, INC.
DATE: November 13, 1997
By: /s/ BINKS A. GRAVAL
---------------------------
Binks A. Graval
Chief Executive Officer and
Chairman of the Board
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
27 Financial Data Schedule
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,058
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 103,618
<CURRENT-ASSETS> 258,495
<PP&E> 32,486
<DEPRECIATION> 16,066
<TOTAL-ASSETS> 327,196
<CURRENT-LIABILITIES> 1,626,333
<BONDS> 0
0
0
<COMMON> 11,532
<OTHER-SE> (1,310,669)
<TOTAL-LIABILITY-AND-EQUITY> 327,196
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,277,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182,820
<INCOME-PRETAX> (1,460,670)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,460,670)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,460,670)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
