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 March 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
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--------------------------
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)
22570 Markey Court, Dulles, Virginia 20166
--------------------------------------------------------
(Address of Principal Executive Offices)
(703) 444-7931
--------------------------------------------------------
(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
May 14, 1998: 1,114,201
------------
Transitional Small Business Disclosure Format (check one): YES NO X
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<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Balance Sheets at March 31, 1998 and December 31, 1997 4
Statements of Income for Three Month Periods Ended
March 31, 1998 and March 31, 1997. 6
Statements of Cash Flows for Three Month Periods Ended
March 31, 1998 and March 31, 1997. 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Results of Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Exhibit 11 - Statement re Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
BALANCE SHEETS
March 31, 1998 and December 31, 1997
Unaudited
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
ASSETS ----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ....................... $ 1,084,230 $ 109,461
Accounts receivable ............................. 161,359 269,425
Inventories ..................................... 349,787 452,335
Other current assets ............................ 47,779 59,088
----------- -----------
Total current assets ..................... 1,643,155 890,309
----------- -----------
PROPERTY AND EQUIPMENT
Land ............................................ 237,339 237,339
Building ........................................ 2,524,780 2,524,780
Manufacturing equipment ......................... 74,494 74,494
Office furniture and equipment .................. 118,763 118,763
Less accumulated depreciation ................... (189,145) (166,998)
----------- -----------
Total property and equipment ............. 2,766,231 2,788,378
----------- -----------
OTHER ASSETS ...................................... 118,972 51,185
----------- -----------
Total assets ............................. $ 4,528,358 $ 3,729,872
=========== ===========
See Notes to Financial Statements
</TABLE>
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
BALANCE SHEETS
March 31, 1998 and December 31, 1997
(continued)
Unaudited
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
LIABILITIES AND STOCKHOLDERS'EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable ............................................................. $ 365,181 $ 337,615
Current portion of notes payable ............................................. 105,511 61,669
Other current liabilities .................................................... 34,864 124,652
----------- -----------
Total current liabilities ............................................. 505,556 523,936
LONG TERM PORTION OF NOTES PAYABLE ............................................. 1,868,338 927,148
----------- -----------
Total liabilities...................................................... 2,373,894 1,451,084
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.20 par value, 1,000,000 shares
authorized; no shares issued and outstanding in 1998
and 1997 ................................................................... -- --
Common stock, par value $0.001, 15,000,000 shares
authorized; 1,114,201 shares issued and outstanding
in 1998 and 1997 ........................................................... 1,114 1,114
Additional paid-in capital ................................................... 4,143,924 4,107,424
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) ................................ (1,990,574) (1,829,750)
----------- -----------
Total stockholders' equity ............................................ 2,154,464 2,278,788
----------- -----------
Total liabilities and stockholders' equity............................. $ 4,528,358 $ 3,729,872
=========== ===========
</TABLE>
See Notes to Financial Statements
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
Three Month Periods
Ended March 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales ....................................... $ 562,022 $ 186,573
Cost of goods sold .............................. 483,854 271,288
----------- -----------
Gross profit (loss) ............................. 78,168 (84,715)
Operating expenses:
Selling expenses .............................. 40,150 68,227
General and admin expenses .................... 207,343 201,347
----------- -----------
Total operating expenses ........................ 247,493 269,574
----------- -----------
Operating loss .................................. (169,325) (354,289)
Rental Income ................................... 41,799 17,771
Financing (expense) income ...................... (33,298) 2,123
----------- -----------
Loss before income taxes ........................ (160,824) (334,395)
Income taxes .................................... -- --
----------- -----------
Net loss ........................................ $ (160,824) $ (334,395)
=========== ===========
Primary loss per common and common
equivalent shares ............................... $ (.14) $ (.30)
Fully diluted loss per common and
common equivalent shares ........................ $ (.14) $ (.30)
Weighted Average
Shares Outstanding .............................. 1,114,201 1,114,201
No dividends were paid
See Notes to Financial Statements
</TABLE>
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the Three months Ended March 31, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................ $ (160,824) $ (334,395)
Adjustments to reconcile net loss to cash used
by operating activities:
Depreciation ...................................... 22,148 16,990
Amortization ...................................... 2,049 7,287
Compensation expense .............................. 36,500
Change in assets and liabilities:
(Increase) decrease in accounts receivable ...... 108,066 (42,374)
Decrease in interest receivable ................. -- 44,517
Decrease in inventories ......................... 102,548 82,238
(Increase) decrease in prepaid expenses
and deposits .................................. (57,228) 35,707
Increase (decrease) in accounts payable and
accrued expenses .............................. 21,999 (528,532)
(Decrease) in customer deposits ................. (83,000) (3,999)
----------- -----------
Net cash used in operating activities ........... (7,742) (722,561)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment .................. -- (250,089)
Acquisition of patent rights and certification ...... (1,300) (3,190)
Proceeds from redemption of marketable securities ... -- 1,498,760
Purchase of securities available for sale ........... -- (996,257)
----------- -----------
Net cash provided by/used in
investing activities ........................ (1,300) 249,224
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings ................. -- 1,230,000
Principal payments on short-term borrowings ......... -- (546,876)
Proceeds from long-term borrowings .................. 1,900,000 --
Principal payments on long-term debt ................ (916,189) (14,966)
----------- -----------
Net cash provided by financing activities ...... 983,811 668,158
----------- -----------
Net increase (decrease) in cash and cash equivalents 974,769 194,821
Cash and cash equivalents at beginning of period ...... 109,461 114,006
----------- -----------
Cash and cash equivalents at end of period ............ $ 1,084,230 $ 308,827
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ....................................... $ 36,611 $ 45,932
=========== ===========
Income taxes ................................... $ -- $ --
=========== ===========
See Notes to Financial Statements
</TABLE>
<PAGE>
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 and are
unaudited. 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 March 31,
1998 and December 31, 1997, results of operations for the three months ended
March 31, 1998 and 1997 and cash flows for the three months ended March 31, 1998
and 1997. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the full year.
Note 3 REVERSE STOCK SPLIT
Effective on May 23, 1997 the Company's Common Stock and Class A Warrants were
split on a reverse basis 1 for 3. For each three shares of Common Stock
outstanding prior to the reverse split, one new share of Common stock was
issued. For each three Class A warrants outstanding prior to the reverse split,
one new Class A Warrant was issued. Each new Class A Warrant entitled the
registered holder thereof to purchase one new share of Common Stock until May
13, 1999 at a new exercise price of $15.00 per share.
Note 4 GENERAL SERVICES ADMINISTRATION (GSA) CONTRACT
The Company negotiated a new contract with the General Services Adminstration
(GSA), the purchasing agent for the U.S. Government. On June 1, 1997 the Company
began its listing on the new GSA Schedule which allows the Company to market its
product lines directly to new federal government and U.S. military customers
rather than through a third-party vendor. The Company recorded $236,902 in sales
through its contract with the GSA during the first quarter of 1998.
Note 5 INVENTORY
Inventory is comprised of the following as of:
3/31/98 12/31/97
--------- ---------
Raw materials 186,551 352,410
Work in progress 111,488 7,497
Finished goods 51,748 92,428
--------- ---------
349,787 452,335
========= =========
<PAGE>
Note 6 STOCK COMPENSATION
On January 28, 1998, at a special meeting of the Board of Directors, options to
purchase common stock were granted to officers and employees of the Company with
an exercise price of $2.50. Also at the meeting, common stock options were
granted to directors of the Company. All options granted expire January 28,
2000. Compensation expense for the directors' options granted using the Black
Scholes pricing model is approximately $36,500 with the following assumptions: a
risk-free interest rate of 5.63 percent, no estimated dividend yield, an
expected volatility of 36 percent and an expected holding period of two years.
No compensation expense was recognized for the employee options granted, which
are valued using the intrinsic value method. However, for disclosure purposes,
compensation expense would be $36,500 for the employee stock options.
Note 7 FACILITIES LEASES
The Company has executed lease agreements with three tenants, effective February
1, 1997 and one tenant effective February 1, 1998 for approximately 18,800
square feet of office space (representing all available space) in the Company's
facility located in Dulles, Virginia. The leases are from five to seven years,
provide for monthly payments of base rent and operating expenses, and include a
2 to 3.5 percent increase in base rent annually. These leases provide estimated
annual rental income of $196,500 which will be sufficient to service the related
mortgage on the facility (see Note 8).
Note 8 MORTGAGE NOTE PAYABLE
On March 25, 1998, the Company secured a mortgage on its office and
manufacturing facility located in Dulles, Virginia in the amount of $1,900,000.
The mortgage provides for monthly payments of principal and interest of $15,306,
including interest at a rate of 7.5 percent per annum. The mortgage is being
amortized over a twenty year period with a ten year balloon and is
collateralized by a first deed of trust on the facility as well as by an
assignment of all tenant occupancy leases. The purpose of the mortgage was to
payoff an outstanding note payable of $900,000 as of December 31, 1997 bearing
interest at a rate of 15 percent per annum as well as to provide approximately
$1,000,000 of excess funding which will be available for working capital
purposes.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of the Company as of and for the two fiscal periods ended
March 31, 1998 and 1997. This discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes related thereto
included in the Company's Form 10-KSB for the fiscal year ended December 31,
1997.
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgement based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
the forward-looking statements as a result of a number of factors, including but
not limited to those discussed herein.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997.
Net sales for the three months ended March 31, 1998 were $562,022 compared to
$186,573 for the same period in 1997, an increase of $375,449 or 201%. The
increase in sales was primarily attributable to increased sales through the
Company's contract with the General Services Administration (GSA) of $236,902
for the three months ended March 31, 1998 compared to nil for the same period in
1997.
The Company's gross profit for the three months ended March 31, 1998 was $78,168
compared to a gross loss of ($84,715) for the same period in 1997. Gross profit
increased due to higher production volume associated with large quantity, more
"standard fit" orders which resulted in improved labor efficiencies.
Total operating expenses for the three months ended March 31, 1998 were $247,493
compared to $269,574 for the same period in 1997. General and administrative
costs for the three months ended March 31, 1998 were $207,343 compared to
$201,347 for the same period in 1997, an increase of $5,996 or 3%. Selling
expenses for the three months ended March 31, 1998 were $40,150 compared to
$68,227 for the same period in 1997, a decrease of $28,077 or 41%. The decrease
was primarily attributable to a decrease in sales consultant costs of $14,465
and a decrease in advertising and promotion of $13,057.
Rental income for the three months ended March 31, 1998 was $41,799 compared to
$17,771 for the same period in 1997, an increase of $24,028. The increase is due
to the Company leasing out the remaining unoccupied space in its Dulles,
Virginia facility. As of February 1, 1998, all non-essential manufacturing and
corporate office space has been fully leased to four third party tenants for
terms ranging from five to seven years.
Non-operating financing expenses for the three months ended March 31, 1998 were
$33,298 compared to income of $2,123 for the same period in 1997, a decrease of
$35,421. The decrease is due primarily to a decrease in interest income of
$32,517.
The net loss for the three month period ended March 31, 1998 was $160,824 or
$.14 per share compared to $334,395 or $.30 per share for the same period in
1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998 the Company had total assets of $4,528,358 compared to total
assets of $3,729,872 as of December 31, 1997, an increase in assets of $798,486.
Total liabilities increased from $1,451,084 as of December 31, 1997 to
$2,373,894 as of March 31, 1998. Total stockholders' equity decreased $124,324
to $2,154,464 as of March 31, 1998.
Total current assets as of March 31, 1998 were $1,643,155 and consisted of cash
and equivalents of $1,084,230, net accounts receivable of $161,359, inventory of
$349,787 and other assets of $47,779. Total current liabilities as of March 31,
1998 were $505,556 and consisted of trade accounts payable of $365,181, current
portion of notes payable of $105,511 and other liabilities of $34,864. Working
capital as of March 31, 1998 was $1,137,599 representing an increase in working
capital since December 31, 1997 of $771,226. Total current assets increased
$752,846 during the three months ended March 31, 1998 primarily due to the the
receipt of approximately $1,000,000 in excess funds from a mortgage placed on
the Company's office and manufacturing facility.
As of March 31, 1998 the Company reported total assets of $4,528,358 including
net property and equipment of $2,766,231 (comprised primarily of costs
associated with the Company's acquisition of land and the subsequent
construction of executive offices and a manufacturing facility thereon) and
other assets of $118,972.
As of March 31, 1998 the Company reported total liabilities of $2,373,894
including, in addition to the current liabilities of $505,556 discussed above,
the long term portion of notes payable of $1,868,338. The long term portion of
notes payable is comprised of a $1,857,379 associated with a mortgage received
from a commercial entity bearing interest at 7.5% per annum and $10,959
associated with an insurance premium finance agreement. Long term debt as of
December 31, 1997 was $927,148 comprised of $900,000 in long term debt received
from a commercial entity bearing interest at a rate of 15% per annum and $27,148
associated with the insurance premium finance agreement.
As of March 31, 1998 the Company reported stockholders' equity of $2,154,464.
This represents a decrease of $124,324 from the December 31, 1997 stockholders'
equity of $2,278,788. The decrease is attributable to the Company's net loss
during the period of $160,824 reduced by $36,500 in compensation expense which
was credited to additional paid in capital. The compensation expense was
associated with common stock options awarded to directors of the Company during
the quarter.
<PAGE>
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.
<PAGE>
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: May 14, 1998 By: /s/Joseph F. Fernandez
--------------------------------------
Joseph F. Fernandez Vice
President, Chief Financial Officer, Chief
Accounting Officer and Treasurer
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- ---------- --------------
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED 3/31/98
<TABLE>
<S> <C>
Actual shares outstanding at 1/1/98 ..................................... 1,114,201
Common and common equivalent shares outstanding at 3/31/98 .............. 1,114,201
Weighted average shares outstanding for the three months ended 3/31/98... 1,114,201
</TABLE>
<TABLE>
<CAPTION>
Three months
ended
3/31/98
-------------
<S> <C>
Net Income (Loss) ...................................... $ (160,824)
Net Loss per common and common equivalent shares ....... $ (0.1443)
Rounded ................................................ $ (0.14)
</TABLE>
<PAGE>
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED 3/31/97
<TABLE>
<S> <C>
Actual shares outstanding at 1/1/97 ..................................... 1,114,201
Common and common equivalent shares outstanding at 3/31/97 .............. 1,114,201
Weighted average shares outstanding for the three months ended 3/31/97... 1,114,201
</TABLE>
<TABLE>
<CAPTION>
Three months
ended
3/31/97
-----------
<S> <C>
Net Income (Loss) .............................................. $ (334,395)
Net Loss per common and common equivalent shares ............... $ (0.3001)
Rounded ........................................................ $ (0.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,084,230
<SECURITIES> 0
<RECEIVABLES> 161,359
<ALLOWANCES> 0
<INVENTORY> 349,787
<CURRENT-ASSETS> 1,643,155
<PP&E> 2,955,377
<DEPRECIATION> 189,146
<TOTAL-ASSETS> 4,528,358
<CURRENT-LIABILITIES> 505,556
<BONDS> 0
0
0
<COMMON> 1,114
<OTHER-SE> 2,153,350
<TOTAL-LIABILITY-AND-EQUITY> 4,528,358
<SALES> 562,022
<TOTAL-REVENUES> 562,022
<CGS> 483,854
<TOTAL-COSTS> 731,347
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,611
<INCOME-PRETAX> (160,824)
<INCOME-TAX> 0
<INCOME-CONTINUING> (160,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,824)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
