<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
----------------------------
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 0-28238
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 54-1521616
------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
45472 Holiday Drive, Sterling, Virginia 20166
--------------------------------------------------------
(Address of Principal Executive Offices)
(703) 709-7788
--------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former
--------------------------------------------------------
Fiscal Year, if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
--- ---
Number of shares of common stock, par value $.001 per share, outstanding
at November 13, 1996: 3,342,483
---------
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
<PAGE> 2
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
INDEX
Part I. Financial Information Page
Item 1. Financial Statements 3
Balance Sheets at September 30, 1996 and September 30, 1995 3
Statements of Income for Three Month Periods Ended
September 30, 1996 and September 30, 1995; and Nine Month
Periods Ended September 30, 1996 and September 30, 1995 5
Statements of Cash Flows for Periods Ended September 30, 1996
and September 30, 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Exhibit 11 - Statement re Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
<PAGE> 3
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
BALANCE SHEETS
September 30, 1996 and 1995
Unaudited
<TABLE>
<CAPTION>
September 30, September 30,
ASSETS 1996 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 128,913 $13,055
Accounts receivable 158,705 39,104
Interest receivable 27,216 -
Inventories:
Raw materials 164,560 42,451
Work in process 33,397 5,926
Finished goods 59,002 68,150
Prepaid expenses 102,835 52,268
Marketable securities 2,499,491 -
---------- ---------
Total current assets $3,174,119 $ 220,954
---------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements $ 115,394 $ 114,494
Manufacturing equipment 63,477 44,235
Office furniture and equipment 78,108 38,416
Land 255,224 -
Construction in process 687,296 -
Less accumulated depreciation (197,126) (164,555)
---------- ---------
$1,002,373 $ 32,590
---------- ---------
OTHER ASSETS
Certifications and patents $ 132,034 $ 110,205
Less accumulated amortization (107,458) (94,916)
---------- ---------
$ 24,576 $ 15,289
Prepaid expenses 28,381 -
Deposits 16,625 4,676
---------- ---------
$ 69,582 $ 19,965
---------- ---------
Total assets $4,246,074 $ 273,509
========== =========
See Notes to Financial Statements
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
September 30, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1996 1995
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 323,216 $ 267,800
Current portion of long-term debt - insurance 55,908 -
Notes payable - related parties 1,200 111,810
Accounts payable 306,693 254,714
Customer deposits 11,573 -
Accrued expenses 35,560 54,280
---------- -----------
Total current liabilities $ 734,150 $ 688,604
---------- -----------
LONG-TERM DEBT - INSURANCE $ 103,493 $ -
---------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $0.001, authorized 15,000,000
shares, issued and outstanding 3,342,483 shares in
1996; par value $.001, authorized 5,000,000 shares,
issued and outstanding 357,900 shares in 1995 $ 3,342 $ 358
Additional paid-in capital, including contributed
services of $37,500 in 1996 and $75,000 in 1995 4,121,932 1,823,548
Less notes receivable for the purchase of common stock (33,080) -
Preferred stock, $.20 par value, authorized 1,000,000
shares; no shares issued and outstanding in 1996
and 1995 - -
Unrealized gain on marketable securities 2,473 -
Accumulated deficit since December 7, 1995,
(termination of S corporation status in which a
deficit of $2,320,227 was applied against
additional paid-in capital) (686,236) -
Accumulated deficit - (2,239,001)
---------- -----------
Total stockholders' equity (deficit) $3,408,431 $ (415,095)
---------- -----------
Total liabilities and stockholders'
equity (deficit) $4,246,074 $ 273,509
========== ===========
</TABLE>
See Notes to Financial Statements
<PAGE> 5
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF INCOME
For the Three Months and Nine Months Ended
September 30, 1996 and 1995
Unaudited
<TABLE>
<CAPTION>
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
--------------------- -------------------
1996 1995 1996 1995
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 384,359 $ 138,529 $1,253,642 $ 479,450
Cost of goods sold 303,164 149,098 1,075,339 552,853
--------- --------- ---------- ----------
Gross profit (loss) $ 81,195 $ (10,569) $ 178,303 $ (73,403)
General and administrative expenses 194,781 59,205 512,541 247,683
Selling expenses 101,465 29,892 385,261 75,898
--------- --------- ---------- ----------
Operating loss $(215,051) $ (99,666) $ (719,499) $ (396,984)
Financial income (expense):
Interest income 51,108 268 59,024 268
Interest expense (1,699) (8,716) (10,805) (19,819)
--------- --------- ---------- ----------
Loss before income taxes $(165,642) $(108,114) $ (671,280) $ (416,535)
Income taxes - - - -
--------- --------- ---------- ----------
Net loss $(165,642) $(108,114) $ (671,280) $ (416,535)
========= ========= ========== ==========
Primary loss per common and common
equivalent shares $ (.05) $ (.05) $ (.24) $ (.18)
Fully diluted loss per common and
common equivalent shares $ (.05) $ (.05) $ (.24) $ (.18)
Weighted Average Shares Outstanding 3,342,483 2,364,983 2,853,783 2,364,983
No dividends paid.
</TABLE>
See Notes to Financial Statements
<PAGE> 6
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
Unaudited
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (671,280) $ (416,535)
Adjustments to reconcile net loss to cash used
by operating activities:
Depreciation 25,185 22,779
Amortization 7,036 17,261
Contributed services 37,500 75,000
Change in assets and liabilities:
(Increase) decrease in accounts receivable (58,461) 20,640
Increase in interest receivable (27,216) -
(Increase) decrease in inventories (19,936) 35,279
Increase in prepaid expenses and deposits (114,855) (25,352)
Increase (decrease) in accounts payable and
accrued expenses 170,843 (3,954)
Decrease in customer deposits (46,498) -
----------- ----------
Net cash used in operating activities $ (697,682) $ (274,882)
----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment $(1,002,562) $ -
Acquisition of patent rights and certifications (21,425) -
Purchase of marketable securities (2,497,018) -
----------- ----------
Net cash used in investing activities $(3,521,005) $ -
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $ 323,216 $ 328,797
Principal payments on short-term borrowings (222,291) (58,876)
Proceeds from long-term debt 187,000 -
Principal payments on long-term debt (27,599) -
Proceeds from public offering 4,985,250 -
Public offering costs (1,274,283) -
Proceeds from issuance of common stock
(prior to public offering) - 15,000
----------- ----------
Net cash provided by financing activities $ 3,971,293 $ 284,921
----------- ----------
Net increase (decrease) in cash and cash equivalents $ (247,394) $ 10,039
Cash and cash equivalents at beginning of period 376,307 3,016
----------- ----------
Cash and cash equivalents at end of period $ 128,913 $ 13,055
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 19,269 $ 4,252
=========== ==========
</TABLE>
See Notes to Financial Statements
<PAGE> 7
Notes to Financial Statements
Note 1 ORGANIZATION AND BUSINESS
Guardian Technologies International, Inc. (The Company) was reincorporated
in the State of Delaware in February, 1996, as part of a plan of Agreement and
Merger between Guardian Technologies International, Inc., a Virginia
corporation, and Guardian Technologies International, Inc., a Delaware
corporation. The Company manufactures and distributes soft armor products,
primarily superior quality ballistic protective vests, for law enforcement
officers, armed forces personnel, and other legitimate individuals or groups
requiring protective equipment.
Note 2 BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. In the opinion of the Company's management,
the disclosures are adequate to make the information presented not misleading,
and the financial statements contain all adjustments necessary to present
fairly in all material respects the financial position as of September 30, 1996
and 1995, results of operations for the three months and nine months ended
September 30, 1996 and 1995 and cash flows for the nine months ended September
30, 1996 and 1995.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
Note 3 COMMON STOCK OPTIONS
The Company has rescinded the Stock Option Plan adopted in January 1996
covering 500,000 shares of common stock. On November 14, 1996, the Company
granted to Richard Stone, who provides advisory services to the Company, an
option to purchase 100,000 shares of common stock, at an exercise price of
$.44 per share.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Results of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the three months ended September 30, 1996 were $384,359,
compared to $138,529 for the same period in 1995. The increase in sales was
attributable to a significant contract which accounted for 60 percent of the
sales in this quarter. The Company's gross profit for the three-month period
ended September 30, 1996 was $81,195 compared to a gross loss of $10,569 for
the same period in 1995. Gross profit increased due to the higher production
volume level, increased productivity, standardization of sizing of products and
tighter inventory control. Total operating expenses for the three month period
ended September 30, 1996 were $296,246, compared to $89,097 for the same period
in 1995. The increase in cost of $207,149 was composed of a $135,576 increase
in general and administrative costs and $71,573 increase in selling expenses.
The increase in general and administrative expenses included increased salaries
and related costs of $36,926 and a $67,641 increase in professional fees. Most
of the increase in selling expenses of $71,573 was composed of commissions and
fees related to increased sales and hiring new sales personnel. In the three
months ended September 30, 1996, non-operating net income increased over the
same period last year by $57,857, due to substantially increased interest
income as well as a reduction in interest expense. The net loss for the three
months ended September 30, 1996 was $165,642, or $57,528 more than the loss of
$108,114 for the same period in 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the first nine months in 1996 were $1,253,642, compared to
$479,450 for the same period in 1995. The increase in sales year to date is
primarily attributable to a significant contract, which accounts for 26 percent
of total sales, and sales to foreign defense forces, which accounts for 20
percent of sales for this nine-month period. The Company's gross profit for
the first nine months in 1996 was $178,303, compared to a gross loss of $73,403
for the same period in 1995. Gross profit increased in the 1996 period due to
increased sales, and because the increased production spread costs over more
units with larger margins. Total operating expenses for the first nine months
in 1996 were $897,802, compared to $323,581 for the same period 1995. This
$574,221 increase in expenses was attributable to the Company's gearing up for
anticipated increased production and sales. The increased expenses include
$264,858 additional general and administrative expenses. Salaries and related
expenses increased by $90,837, and professional fees increased by $126,469.
Additionally, Selling Expenses increased by $309,363, including increases in
salesmen's commissions of $22,480 and $233,236 in increased payments to private
contractors hired to work with dealers, law enforcement agencies, and
government agencies to promote Guardian body armor. Travel expenses and
advertising and promotion expenses also increased $53,647. The 1996
non-operating net income for the Company increased $67,770 over 1995's total
net interest expense of $19,551. This increase is due to significant increases
in investment income as well as decreases in interest expense. The net loss
for the nine months ended September 30, 1996, was $671,280, or $254,745 more
than the loss of $416,535 for the same period in 1995.
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has satisfied its capital requirements
through the sale of common stock to investors, loans from affiliated lenders
and securityholders, and notes payable personally guaranteed by officers and
principal securityholders of the Company. In addition, the Company has issued
common stock in lieu of cash for services rendered.
In May, 1996, the Company completed an initial public offering. In the
offering, the Company issued and sold 977,500 units, each unit consisting of
one share of common stock and one warrant to purchase common stock. The gross
proceeds from the offering totaled $4,985,250, and the Company received net
proceeds of $3,628,019, after deducting commissions, fees and other costs
associated with the offering.
Proceeds of the public offering were temporarily invested in short-term
securities with maturities geared to anticipated operating needs and the
pending completion of the company's new facility when production equipment will
be purchased. Included in notes payable are borrowings of $295,945 against
these short-term securities. These borrowings were necessary because current
cash requirement did not match the maturities of the securities.
At September 30, 1996, the Company had net working capital of $2,439,969,
stockholders' equity of $3,408,431, and accumulated losses of $686,236 and
$2,320,227, which was reclassified paid-in capital upon termination of the S
corporation election on December 7, 1995.
The Company has purchased land and begun construction on a new facility.
The total cost at September 30, 1996, is $942,520, composed of $255,224 for
land and $687,296 in construction costs. Construction of the new facility,
which will house the Company's manufacturing, administrative and sales
operations, is on schedule and occupancy is expected during January, 1997.
Management plans to lease approximately 49 percent of the building to other
tenants. Management has initiated discussions with several financial
institutions to obtain permanent financing for the building.
At September 30, 1996, the Company's inventories are $256,959 or $140,432
more than the prior year. The additional inventories have been purchased for
anticipated increased production.
For the nine months ended September 30, 1995, the Company incurred a loss
of $416,535. Working capital, which was a negative $181,155 at the beginning
of the period, decreased to a deficit of $467,650 at September 30, 1995. The
Company financed these losses and cash used in operations through significant
borrowings and/or stock transactions in 1995.
In connection with the company's efforts to reduce costs, the salaries of
the President and Vice President have each been reduced from $150,000 to
$100,000 effective with the pay period commencing on August 30, 1996.
In an effort to increase sales of the Company's products in overseas
markets, management has hired one of three new international sales
representatives. Management has identified additional candidates for the two
remaining positions, though they have not yet been filled.
<PAGE> 10
Management continues to carry out its plan for the use of proceeds as
described in the Company's Prospectus dated May 14, 1996. The Company does not
plan to purchase the rigid product fabrication equipment identified in the
prospectus until after occupying the new facility. Management has used a
portion of the resources allocated for "research/development and patents on new
products" to develop a new type of armor for community police officers and
other equipment for law enforcement. Some of the funds allocated for
"marketing/advertising/promotions" are being used to introduce these new
products in the marketplace.
The Company's independent auditor's report on the financial statements as
of and for the year ended December 31, 1995, includes a statement to the effect
that there is substantial doubt about the Company's ability to continue as a
going concern. Management intends to address these conditions by increasing
revenues from its existing and planned market expansion. There can be no
assurance, however, that the Company will be successful in these plans.
<PAGE> 11
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
------- -----------
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended September 30, 1996.
<PAGE> 12
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
----------------------------------------------
(Registrant)
Date: November 14, 1996 By: /s/Joseph F. Fernandez
----------------------------------------------
Joseph F. Fernandez
Vice President, Chief Financial Officer, Chief
Accounting Officer and Treasurer
<PAGE> 13
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------- ----------- ----
11 Statement re Computation of Per Share Earnings 1
27 Financial Data Schedule -
<PAGE> 1
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS AND NINE MONTHS ENDED 9/30/95
<TABLE>
<S> <C>
Actual shares outstanding 9/30/95 adjusted for stock splits and dividends 1,324,230
Common shares subject to SAB Topic 4D (outstanding for all periods presented)
Shares issued to employees for contributed services (11/95) 3,330
Securities sold in private offering (12/95) 842,835
Securities issued for notes receivable (12/95) 194,588
Common equivalents subject to SAB Topic 4D -0-
---------
Common and common equivalent shares outstanding at 9/30/95 2,364,983
</TABLE>
<TABLE>
<Caption
Three months Nine months
ended ended
9/30/95 9/30/95
------------ -----------
<S> <C> <C>
Net Income (Loss) $(108,114) $(416,535)
Net Loss per common and
common equivalent shares $ (0.0457) $ (0.1761)
Rounded $ (0.05) $ (0.18)
</TABLE>
<PAGE> 2
COMPUTATION OF EARNINGS PER SHARE
NINE MONTHS ENDED 9/30/96
<TABLE>
<S> <C>
Actual shares outstanding at 1/1/96 2,364,983
Common equivalents subject to SAB Topic 4D - Warrants Antidilutive -0-
---------
Common and common equivalent shares outstanding at 6/30/96 2,364,983
Weighted Average Computation for 9 months ended 9/30/96
Common and common equivalent shares outstanding for entire 9 months 2,364,983
Shares issued at IPO 977,500
Outstanding for 4.5/9 months .50
---------------------------------------
488,750
----------
Weighted average shares outstanding for 9 months ended 9/30/96 2,853,733
==========
Weighted Average Computation for 3 months ended 9/30/96
Common and common equivalent shares outstanding at 1/1/96 2,364,983
Shares issued at IPO 977,500
----------
Shares Outstanding at 6/30/96 3,342,483
Changes during 3 months ended 9/30/96 -0-
----------
Weighted average shares outstanding for 3 months ended 9/30/96 3,342,483
==========
</TABLE>
<TABLE>
<CAPTION>
Three months Six Months
ended ended
9/30/96 9/30/96
------------ ----------
<S> <C> <C>
Net Income (Loss) $(165,642) $(671,280)
Net Loss per common and
common equivalent shares $ (0.0495) $ (0.2352)
Rounded $ (0.05) $ (0.24)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 128,913
<SECURITIES> 2,499,491
<RECEIVABLES> 185,921
<ALLOWANCES> 0
<INVENTORY> 256,959
<CURRENT-ASSETS> 3,174,119
<PP&E> 1,199,499
<DEPRECIATION> 197,126
<TOTAL-ASSETS> 4,246,074
<CURRENT-LIABILITIES> 734,150
<BONDS> 0
0
0
<COMMON> 3,342
<OTHER-SE> 3,405,089
<TOTAL-LIABILITY-AND-EQUITY> 4,246,074
<SALES> 1,253,642
<TOTAL-REVENUES> 1,253,642
<CGS> 1,075,339
<TOTAL-COSTS> 1,973,141
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,805
<INCOME-PRETAX> (671,280)
<INCOME-TAX> 0
<INCOME-CONTINUING> (671,280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (671,280)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
