SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number 0-28238
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 54-1521616
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
22570 Markey Court, Dulles, Virginia 20166
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Issuer's telephone number: 703-444-7931
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Class A Warrants
(Title of Class)
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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $1,656,649.
The aggregate market value of the voting stock held by non-affiliates as of
April 12, 1999 was approximately $1,533,572 based on the average bid and asked
price of such stock.
The number of shares outstanding of issuer's Common Stock, $.001 par value,
as of April 12, 1998 was 1,243,831.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
<PAGE>
PART I
ITEM 1 DESCRIPTION OF BUSINESS
GENERAL
Guardian Technologies International, Inc. (referred to hereinafter as the
Company) was originally incorporated in 1989 in the Commonwealth of Virginia,
and commenced full production of its products in December, 1990. In 1996, the
Company was reincorporated in the State of Delaware. The Company manufactures
its products under its own label at its facility in Dulles, Virginia. The
Company currently employs 18 people.
OPERATIONS
The Company manufactures and distributes ballistic protective equipment,
including equipment commonly referred to as body armor.
The Company's product lines include four basic types of ballistic protective
vests, ballistic protective shields, K-9 ballistic protective vests, aircraft
ballistic protective equipment, and assorted other ballistic protective devices,
such as ballistic protective blankets and seat cover liners.
The Company's four main product lines of ballistic protective vests are
manufactured in six styles, each providing varying degrees of protection and
certified under guidelines established by the National Institute of Justice (the
"NIJ"). All of the Company's body armor products are certified under the NIJ's
Standard 0101.03 for Police Armor.
PRODUCTS
The Company's life-saving products are manufactured primarily with
AlliedSignal's High Performance Materials which are Spectra(R) 1000 woven
fabric, and non-woven composite ballistic materials Spectra Shield(R), Spectra
Flex(TM), Gold Shield(TM) and Gold Flex(TM). Based on studies and testing
performed at H.P. White Laboratory, Inc., an independent testing laboratory,
tests prepared by AlliedSignal and the Company's own test experience, the
Company believes that protective vests and equipment manufactured with
AlliedSignal High Performance Materials provide, pound for pound, greater
ballistic protection and reduced blunt trauma to the wearer, at higher
projectile velocities and with longer durability than similar equipment made
with other forms of ballistic resistant materials.
The Company has been assigned rights to U.S. patents numbered 5,327,811;
5,448,938; and 5,377,577 for, respectively, a Lightweight Ballistic Protective
Device, a Removable Ballistic Resistant Armor Seat Cover and Floor Mat, and a
Ballistic Shield. These patents include related production techniques. The
Company also acquired the rights to manufacture and distribute two other
patented products: a two-panel set of thin, lightweight rigid bullet-resistant
armor for police patrol bicycles, and a prisoner restraint device for improved
security when transporting a prisoner. For the latter device, the Company was
granted the trademark MAXI-MITT(TM).
MANUFACTURING
The Company manufactures substantially all of its products. The Company
manufactures its products under its own label at its facility in Dulles,
Virginia.
<PAGE>
RESEARCH AND DEVELOPMENT
The Company concluded research and development during 1996 on a new line of
ballistic protective vests marketed as the Thin Blue Line (TBL). The TBL vests,
made with AlliedSignal's newly developed High Performance Materials, Gold
Flex(TM) and Gold Shield(TM), are light, flexible and cost less to produce. The
TBL products are more competitively priced than Guardian's other four lines and
should be attractive to the price conscious consumer.
Also in 1996, the Company introduced a two-panel set of thin and very
lightweight rigid armor which can be easily installed on police patrol bicycles.
The introduction of this product followed the introductions of a newly designed
ballistic-protective vest for police dogs and a restraint device used when
prisoners are being transported.
The Company did not initiate any new R&D efforts during 1997 or 1998.
RAW MATERIALS, SOURCES AND AVAILABILITY
The Company is dependent upon a single supplier for the majority of its raw
materials. These materials are available only from AlliedSignal, which holds the
patent for the unidirectional fiber/resin process incorporating Spectra(R) ultra
high molecular weight polyethylene fibers or aramid fibers. AlliedSignal also
controls the proprietary thermoplastic process used to manufacture its Shield
and Flex materials.
CUSTOMERS
In 1998 and 1997, 2% and 4%, respectively, of Guardian's total sales were made
to foreign police and military organizations. The Company is pursuing
opportunities in several nations of the Pacific Rim, in Central and South
America, in Eastern and Central Europe, and the Middle East.
Government contract work and sales to U.S. government agencies represented 19%
of total sales in 1998 and 33% in 1997. Sales to municipal law enforcement
agencies represented 26% of total sales in 1998 and 11% in 1997. The Company
intends to team with manufacturers of compatible armor products and/or materials
to obtain contracts by bringing together technical expertise, sales and
marketing efforts and production capabilities.
The Company established a contract with the General Services Administration
(GSA) - the federal government's principal procurement channel - which enables
the Company to sell all its products directly through GSA. The four-year
contract was signed and became effective on June 1, 1997.
The Company's sales representatives are making intensive efforts to make direct
contact with key procurement personnel in small and medium size law enforcement
agencies as well as responding to agency and department solicitations for bids
and proposals.
The Company maintains ties to two large police fraternal organizations which
resulted in sales throughout 1998 and 1997.
<PAGE>
MARKETING AND DISTRIBUTION
The Company's products are marketed directly by the Company and through selected
local dealers of police equipment to local, state, and federal agencies, private
security companies, and private individuals with legitimate security needs.
Marketing methods include personal sales presentations, advertising in magazines
and periodicals aimed at the law enforcement profession, direct mail information
dissemination, participation by the Company sales personnel at selected trade
shows and conferences.
The Company entered the Internet universe with its own home page
(www.guardiantech.com) and E-Mail address ([email protected]) which are
developing into resources for marketing its products in the United States and
around the world.
The Company also subscribes to two other marketing services: BidNet and FACNet.
BidNet tracks bids and solicitations for proposals from local and state
jurisdictions throughout the United States. FACNet provides information on
federal procurements and is a required on-line service for GSA contract
suppliers seeking to sell to the U.S. Department of Defense (DOD). In order to
respond to DOD solicitation opportunities, the Company seeks out manufacturers
of compatible products and/or materials with which the Company can match its
technical expertise, sales and marketing efforts and production capabilities.
BACKLOG
At December 31, 1998, the Company's estimated backlog of sales was $75,000. A
year earlier, at December 31, 1997, the Company's estimated backlog of sales was
$350,000. The high volume of backlog at December 31, 1997 was due to a
significant sale under the Company's contract with the General Services
Administration (GSA) of approximately $466,000 of which $302,000 was completed
during 1997 and $164,000 remained in backlog at year end. The backlog of $75,000
at December 31, 1998 is more in line with the amount in backlog at the end of an
average month.
COMPETITION
The ballistic protective equipment business is highly competitive. In the
domestic law enforcement, federal government and military markets, the Company
has at least five major competitors. The Company believes that the principal
elements of competition in the sale of ballistic protective vests are 1)
materials used in construction, 2) style and design of the vest, and 3) price.
In the law enforcement and military markets, the Company frequently bids for
orders in response to invitations for bidding which set forth product
performance specifications. Although the Company's products are priced slightly
higher than the competition's products, the Company believes its higher prices
are justified by better craftsmanship, higher ballistic capability of materials,
more body area coverage, and a longer warranty. In international markets, the
Company's competition consists of several American competitors and a few
international companies.
<PAGE>
ITEM 2 DESCRIPTION OF PROPERTY
The Company vacated its previously leased premises to occupy its newly
constructed facility at 22570 Markey Court, Dulles, Virginia on January 23,
1997. The total cost for the 33,741 square foot facility at December 31, 1998
was $2,762,119 comprised of $237,339 for land and $2,524,780 in building costs.
At December 31, 1997 management had leased approximately 24% of the building to
other tenants. At February 1, 1998, an additional 32% was leased.
On March 31, 1999, the Company sold its land and building for $2,825,000. The
Company has signed a five year lease for the 15,062 square feet of space it had
been using throughout 1997 and 1998 for approximately $13,000 per month with an
annual escalation of 3%. As a result of the sale, after March 31, 1999, the
Company will no longer recognize rental income nor will it incur depreciation
expense or other operating expenses associated with owning and managing a
commercial building.
ITEM 3 LEGAL PROCEEDINGS
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded on the NASDAQ Stock Market under the
symbol GRDN. The prices listed below are the high and low sales for common
shares during 1997 and 1998.
Price
--------------------
Quarter Ended Low High
------------- --------- ---------
3/31/97 $ 0.84375 $ 2.53125
6/30/97 $ 0.875 $ 2.625
9/30/97 $ 1.375 $ 4.00
12/31/97 $ 2.50 $ 3.375
3/31/98 $ 1.75 $ 2.8125
6/30/98 $ 2.125 $ 3.375
9/30/98 $ 2.00 $ 3.75
12/31/98 $ 1.25 $ 3.8125
The common stock purchase warrants of the Company were traded on the NASDAQ
Stock Market under the symbol GRDNW. On October 27, 1998 the Company received a
letter from NASDAQ indicating that the warrants were subject to delisting
because the warrants had failed to maintain a minimum of two active market
makers. Based on limited interest in the warrants from outside investors
management decided not to attempt to rectify the market maker situation. NASDAQ
subsequently delisted the warrants. The prices listed below are the high and low
sales prices for the common stock warrants during 1997 and 1998.
Price
---------------------
Quarter Ended Low High
------------- --------- ---------
3/31/97 $ 0.09375 $ 0.750
6/30/97 $ 0.0625 $ 0.250
9/30/97 $ 0.03125 $ 0.46875
12/31/97 $ 0.250 $ 0.375
3/31/98 $ 0.3125 $ 0.3125
6/30/98 $ 0.250 $ 0.375
9/30/98 $ 0.125 $ 0.4375
12/31/98 $ 0.050 $ 0.125
There have been no dividends declared since inception.
<PAGE>
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the consolidated financial
statements and related notes thereto.
OVERVIEW
As disclosed in the Company's independent auditors report on the financial
statements as of and for the years ended December 31, 1998 and 1997 (and further
discussed in Note 2 to the financial statements) the Company has suffered
continued losses from operations since inception that raise substantial doubt
about its ability to continue as a going concern. In an effort to reverse this
trend and achieve profitability management has taken, or intends on taking the
following actions:
1.) Seek acquisition candidates with profitable operations to build the
Company's revenue base.
2.) Increase revenue output of existing operations. During the first
quarter of 1999, Guardian set in motion the NS Microwave Sales and
Marketing Agreement that was negotiated as part of the dissolution of
the previously announced purchase agreement between the two companies.
The NSM Agreement is anticipated to produce an additional element of
revenue in the form of microwave products that can be offered to the
Company's existing armor products customer base.
3.) Reduce non-armor manufacturing related costs and activities associated
with the Company's existing operations. As discussed in Note 11 to the
financial statements, the Company sold its manufacturing and
administrative facility for $2,825,000. In conjunction with the sale,
the purchaser assumed the Company's note payable, thereby reducing
interest costs. Residual proceeds from the sale of approximately
$883,000 will be used to facilitate the Company's acquisition plans.
For these reasons, management believes that no adjustments or
reclassifications of recorded assets and liabilities is necessary at this
time. There can be no assurances, however, that the Company will be
successful in these plans.
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales for 1998 were $1,656,649 compared to $1,154,970 in 1997, an increase
of $501,679 or 43.4%. The increase in sales is attributable primarily to the
completion of a new order to supply armor products to an allied government
during 1998. The Company anticipates continued sales during 1999 associated with
this order.
The Company's gross profit in 1998 was $278,672 or 17% compared to a gross loss
of ($82,135) in 1997. The Company's improved margin resulted from increased
sales coupled with reductions in production costs and increased manufacturing
efficiency.
Total operating expenses were $697,856 for 1998 compared to $799,822 for 1997.
Selling expenses were 129,070 in 1998 compared to $258,067 in 1997, a decrease
of $128,997 or 50.0%. The decrease was attributable primarily to a decrease in
sales consultant costs of $51,524 and a decrease in advertising and promotion of
$34,730. General and administrative costs were $568,786 in 1998 compared to
$521,755 in 1997, an increase of $47,301 or 9.0%. The increase was attributable
primarily to a bad debt cost of $32,224 in 1998.
Other income (expense) was ($28,071) in 1998 compared to $847 in 1997. The
decrease was attributable primarily to two factors. Rental income increased by
$82,919 from $101,150 in 1997 to $184,069 in 1998 as the Company was able to
lease out the remaining unoccupied space in its Dulles, Virginia facility.
Offsetting the increase in rental income during 1998 was acquisition costs of
$111,423 (mostly legal and audit fees) related to a failed acquisition. Without
these additional non-operating costs, the Company's net loss would have been
($355,832) or 61% lower than the loss incurred in 1997.
The net loss in 1998 was ($447,255) or ($.40) per share compared to ($861,110)
or ($.77) per share in 1997.
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales for 1997 were $1,154,970 compared to $1,475,577 in 1996, a decrease of
$320,607 or 21.7%. The decrease in sales is attributable to a decrease in sales
to foreign governments and agencies (from $314,850 or 21% of sales in 1996 to
$42,059 or 4% of sales in 1996), a decrease of $272,791.
The Company sustained a gross loss in 1997 of ($82,135) compared to a gross
profit of $156,834 in 1996. The reduction in gross margin for the year ended
December 31, 1997 as compared to 1996 resulted from lower sales volume,
production inefficiencies attributed to a large number of small orders and the
disposition of approximately $33,000 of obsolete inventory.
Total operating expenses were $779,822 for 1997 compared to $1,202,237 for 1996.
General and administrative costs decreased $277,322 from $799,077 in 1996 to
$521,755 in 1997. This decrease was primarily attributable to decreases in
professional fees of $125,000 and salary decreases for officers of $85,000.
Selling expenses decreased $145,093 from $403,160 in 1996 to $258,067 in 1997.
This decrease was due to an $85,000 decrease in sales consultants and a $40,000
decrease in sales commissions attributable to lower sales volume. Advertising,
conference and exhibit costs decreased by $11,000.
The 1997 non-operating financing income for the Company decreased from income of
$91,719 in 1996 to expense of $100,303 in 1997. The net financing income in 1996
resulted because the proceeds from the May, 1996 public offering were invested
in US Government agency debt securities. These securities served as collateral
for a line of credit with a broker. The Company used the line of credit
borrowings to pay off outstanding loans, finance the construction of its
production and headquarters facility and to provide for working capital needs.
Additionally, on February 7, 1997, the Company executed a note for $900,000 with
a commercial entity. Interest at 15 percent, annual rate, is due monthly. The
note is secured by a first deed of trust on the office and manufacturing
facility in Dulles, Virginia. The net financing expense in 1997 resulted from an
excess of the interest costs from the line of credit borrowings and from the
$900,000 note over the interest earned in securities. Interest capitalized in
connection with the construction of the new facility amounted to $21,509 for
1996 and $19,000 in 1997.
Rental income increased from nil in 1996 to $101,150 in 1997 as the Company was
able to lease excess space in its new facility. The net loss in 1997 was
($861,110) compared to ($953,684) in 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998 the Company had total assets of $4,241,669 compared to
total assets of $3,729,872 as of December 31, 1997, a decrease in assets of
$511,817. Total liabilities increased from $1,451,004 as of December 31, 1997 to
$2,110,136 as of December 31, 1998. Total shareholders' equity decreased
$147,255 to $2,131,533 as of December 31, 1998.
Total current assets as of December 31, 1998 were $1,530,634 and consisted of
cash and equivalents of $585,937, net accounts receivable of $193,718, inventory
of $180,786, notes receivable of $400,000 and prepaid expenses and other assets
of $170,193. Total current liabilities as of December 31, 1998 were $286,880,
comprised of accounts payable and accrued expenses of $205,933 and the current
portion of notes payable of $80,947. Working capital as of December 31, 1998 was
$1,243,754 representing an increase in working capital for the year of $877,381.
Working capital increased during the year primarily due to the receipt of
approximately $1,000,000 in excess funds from a mortgage placed on the Company's
office and manufacturing facility coupled with the receipt of $300,000 from the
issuance of common stock and the exercise of stock options offset by operating
losses sustained during the year of $447,255.
Total assets as of December 31, 1998 of $4,241,669 include, in addition to
current assets of $1,530,634 discussed above, net property and equipment of
$2,711,035 comprised primarily of costs associated with the Company's
acquisition of land and the subsequent construction of the Company's executive
offices and manufacturing facility thereon.
Total liabilities as of December 31, 1998 of $2,110,136 include, in addition to
current liabilities of $286,880 discussed above, the long term portion of notes
payable of $1,823,256 comprised of a mortgage received from a commercial entity
bearing interest at 7.5% per annum. 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 15% per annum and $27,148 associated with an
insurance premium finance agreement.
As of December 31, 1998 the Company reported shareholders' equity of $2,131,533.
This represents a decrease of $147,255 from December 31, 1997 shareholders'
equity. The decrease is attributable to the Company's net loss for the year of
$(447,255) offset by the issuance of common stock and the exercise of stock
options in the amount of $300.000.
FORWARD-LOOKING STATEMENTS
The Company believes that this report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are subject
to certain risks and uncertainties. Forward-looking statements represent the
Company's expectations or beliefs concerning future events, including the
following: any statements regarding future sales and gross profit percentages,
any statements regarding the continuation of historical trends, any statements
regarding the sufficiency of the Company's cash balances and cash generated from
operating and financing activities for the Company's future liquidity and
capital resource needs, any statements regarding the effect of regulatory
changes, the success of development and enhancement of the Company's products,
the adequacy of the Company's facilities, potential acquisitions, and any
statements regarding the future of the industry and the various parts of the
markets in which the Company conducts its business. The Company cautions that
any forward-looking statements made by the Company in this report or in other
announcements made by the Company are further qualified by important factors
that could cause actual results to differ materially from those in the
forward-looking statements.
<PAGE>
THE YEAR 2000 ISSUE
The Year 2000 Issue (Y2K) is the result of computer programs being written using
two digits rather than four to define the applicable year. Any the the Company's
computer programs that have date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Based upon a recent assessment,
the Company has made a preliminary determination that it may be required to
upgrade or replace certain portions of its software so that its computer systems
will properly utilize dates beyond December 31, 1999. The Company presently
believes that, with upgrades of existing software and conversions to new
software at minimal cost, Y2K can be mitigated. However, the Y2K solutions have
not been implemented and are not scheduled to be completed until later in 1999.
If such upgrades and conversions are not made, or are not completed or available
timely, the Year 2000 Issue could have a material impact on the operations of
the Company.
Furthermore, the Company has yet to initiate formal communications with its
significant suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issue. The Company has one supplier upon which it relies for the
majority of its ballistic materials. Should this supplier suffer from problems
related to Y2K, the Company has alternate sources to which it could turn to
obtain these materials. As a secondary alternative, the Company also has other
sources to which it could turn to obtain alternative ballistic materials made
from other raw materials. As a result, the Company believes that the effects of
Y2K, as it may effect its significant suppliers, can be mitigated. However,
there can be no guarantee that the systems of other companies on which the
Company's business relies will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company. In the view of
the foregoing, there can be no assurance that the Year 2000 Issue will not have
a material adverse effect upon the Company.
ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998. This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for the Company's financial statements for the year
ended December 31, 2000 and the adoption of this standard is not expected to
have a material effect on the Company's financial statements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits, was issued in February 1998. This statement revises the disclosure
requirement for pensions and other postretirement benefits. This statement is
effective for the Company's financial statements for the year ended December 31,
1998 and the adoption of this standard is not expected to have a material effect
on the Company's financial statements.
<PAGE>
ITEM 7 FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORTS
BALANCE SHEET - December 31, 1998
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - For the Years Ended
December 31, 1998 and 1997
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - For the Years Ended
December 31, 1998 and 1997
STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1998 and 1997
NOTES TO FINANCIAL STATEMENTS
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Guardian Technologies International, Inc.
Dulles, Virginia
We have audited the accompanying balance sheet of Guardian Technologies
International, Inc. as of December 31, 1998 and the related statements of
operations and comprehensive loss, changes in shareholders' equity, and cash
flows for the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guardian Technologies
International, Inc. as of December 31, 1998, and the results of its operations
and its cash flows for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred losses from operations and
negative operating cash flows. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
March 5, 1999, except for Note 11, as to
which the date is March 31, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Guardian Technologies International, Inc.
Dulles, Virginia
We have audited the balance sheet of Guardian Technologies International, Inc.
as of December 31, 1997 and the related accompanying statements of operations
and comprehensive loss, changes in shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Guardian Technologies
International, Inc. as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered continued losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Thompson, Greenspon & Co., P.C.
Fairfax, Virginia
March 3, 1998
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 585,937
Accounts receivable 193,718
Inventories 180,786
Note receivable 400,000
Prepaid expenses and other 170,193
-----------
Total Current Assets 1,530,634
PROPERTY AND EQUIPMENT, net 2,711,035
-----------
TOTAL ASSETS $ 4,241,669
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $ 80,947
Accounts payable 193,726
Accrued payroll and related benefits 12,207
-----------
Total Current Liabilities 286,880
LONG TERM DEBT, less current portion 1,823,256
-----------
Total Liabilities 2,110,136
-----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 5)
SHAREHOLDERS' EQUITY
Preferred stock, $0.20 par value, 1,000,000 shares
authorized; no shares issued and outstanding -
Common stock, par value $0.001, 15,000,000 shares
authorized; 1,243,831 shares issued and
outstanding 1,244
Additional paid-in capital 4,407,294
Accumulated deficit (2,277,005)
-----------
Total Shareholders' Equity 2,131,533
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,241,669
===========
See accompanying notes to these financial statements.
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
Net Sales $ 1,656,649 $ 1,154,970
Cost of goods sold 1,377,977 1,237,105
----------- -----------
Gross Profit (Loss) 278,672 (82,135)
Operating Expenses:
Selling expenses 129,070 258,067
General and administrative 568,786 521,755
----------- -----------
Total operating expenses 697,856 779,822
----------- -----------
Operating Loss (419,184) (861,957)
Other Income (Expense):
Financing expense, net (100,717) (100,303)
Rental income 184,069 101,150
Costs related to failed acquisition (111,423) -
----------- -----------
Total other income (expense) (28,071) 847
----------- -----------
Net Loss and Comprehensive Loss $ (447,255) $ (861,110)
=========== ===========
Net Loss per Common Share,
Basic and Dilutive $ (.40) $ (.77)
=========== ===========
Average Common Shares Outstanding,
Basic and Dilutive $ 1,120,310 $ 1,114,201
=========== ===========
See accompanying notes to these financial statements.
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Net
Unrealized Gain
Additional on Securities
Common Stock Paid-in Notes Available Accumulated
Shares Amount Capital Receivable for Sale Deficit Total
---------- -------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 1,114,201 1,114 4,140,504 (33,080) 10,736 (968,640) 3,150,634
Net change in unrealized gain on
securities available for sale - - - - (10,736) - (10,736)
Cancellation of common stock subscriptions - - (33,080) 33,080 - - -
Net loss - - - - - (861,110) (861,110)
---------- -------- ---------- ---------- ----------- ----------- ----------
Balances, December 31, 1997 1,114,201 1,114 4,107,424 - - (1,829,750) 2,278,788
Exercise of options 100,000 100 249,900 - - - 250,000
Issuance of commom stock 29,630 30 49,970 - - - 50,000
Net loss - - - - - (447,255) (447,255)
---------- -------- ---------- ---------- ----------- ----------- ----------
Balances, December 31, 1998 1,243,831 $ 1,244 $4,407,294 $ - $ - $(2,277,005) $2,131,533
========== ======== ========== ========== =========== =========== ==========
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (447,255) $ (861,110)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation and amortization of property
and equipment 92,949 92,812
Write down of assets to net realizable value 68,224 -
Interest capitalized in connection with
construction in progress - (19,000)
Realized loss on securities available for sale - 1,464
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 42,382 (208,427)
Inventories 235,550 133,247
Prepaid expenses and other (66,697) 76,725
Increase (decrease) in:
Accounts payable (155,725) (540,389)
Accrued payroll and related benefits (19,629) -
Customer deposits (80,981) 81,088
----------- -----------
Net cash used in operating activities (331,182) (1,243,590)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for construction in progress - (199,253)
Purchase of property and equipment (6,429) (44,567)
Proceeds from sale of securities available for sale - 3,512,311
Purchase of securities available for sale - (1,022,758)
Investment in certification costs (1,300) (5,303)
Decrease in deposits - 487
Issuance of notes receivable (500,000) -
Payments on notes receivable 100,000 -
----------- -----------
Net cash provided by (used in)
investing activities (407,729) 2,240,917
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on line-of-credit - 40,000
Payments on line-of-credit - (40,000)
Proceeds from issuance of notes payable 1,926,161 900,000
Payment on notes payable (1,010,774) (1,907,569)
Exercise of options 250,000 -
Issuance of common stock 50,000 -
----------- -----------
Net cash provided by (used in)
financing activities 1,215,387 (1,007,569)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 476,476 (10,242)
CASH AND CASH EQUIVALENTS, beginning of period 109,461 119,703
----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 585,937 $ 109,461
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 146,842 $ 211,681
=========== ===========
Cancellation of common stock subscriptions $ - $ 33,080
=========== ===========
See accompanying notes to these financial statements.
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Guardian Technologies International, Inc. (the
"Company") was incorporated in Virginia on October 30, 1989 and commenced
full production in December 1990. 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.
In February 1996, the Company was reincorporated in the State of Delaware
under the name of Guardian Technologies International, Inc. and was
authorized to issue 15,000,000 shares of common stock, $.001 par value,
and 1,000,000 shares of preferred stock, $.20 par value. Thereafter,
pursuant to approval of the Company stockholders at a special stockholders
meeting, a Plan of Agreement and Merger between Guardian Technologies
International, Inc., the Virginia corporation and Guardian Technologies
International, Inc., the Delaware corporation was executed and filed with
2,364,983 shares of common stock of the Delaware corporation issued in a
share for share exchange for the 2,364,983 shares of the Virginia
corporation then outstanding.
Effective May 23, 1997, the Board of Directors authorized a one-for-three
reverse stock split for the Company's common shares and Class A warrants,
thereby decreasing the number of issued and outstanding common shares to
1,114,201 and reducing issued and outstanding purchase warrants to
814,417. All references in the accompanying financial statements and notes
to financial statements to the number of common shares and per-share
amounts have been restated to reflect the reverse stock split.
REVENUE RECOGNITION - Manufacturing revenue is recognized upon shipment of
product. Rental income is recorded as earned in connection with tenant
lease agreements at the Company's office and manufacturing facility.
USE OF ESTIMATES - The preparation of the Company's financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in these financial statments and accompanying notes. Actual
results could differ from those estimates.
FINANCIAL INSTRUMENTS - The estimated fair value of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses,
other liabilities approximate their carrying amounts in the financial
statements.
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term
debt approximates its carrying value.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist of trade
accounts receivable and cash. The Company grants credit terms in the
normal course of business to its customers, who are primarily dealers or
municipal, state and Federal law enforcement agencies, and who are located
throughout the United States. As part of its ongoing procedures, the
Company monitors the credit worthiness of its customers.
The Company maintains cash in commercial banks in accounts which are
insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000
per customer and in uninsured accounts. The cash amount presented on the
balance sheet reflects the actual amounts on deposit with banks reduced
for outstanding checks and increased for deposits in transit. At December
31, 1998, the Company had cash in banks in excess of FDIC insured limits
of approximately $606,000.
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH EQUIVALENTS - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE - It is the practice of management to write off
receivables in the year amounts are determined to be uncollectible. No
allowance for doubtful accounts is reflected in these financial statements
since management believes all accounts at December 31, 1998 to be fully
collectible.
INVENTORIES - Inventories consist of purchased materials and components,
work-in-process, and finished goods. Inventories are stated at the lower
of cost or market, with cost being determined on a first-in, first-out
basis. Inventories consisted of the following at December 31, 1998:
Raw materials and components $ 148,502
Work-in-process 1,974
Finished goods 30,310
----------
$ 180,786
==========
SECURITIES AVAILABLE FOR SALE - Securities to be held for indefinite
periods of time are classified as securities available for sale.
Unrealized gains and losses are excluded from earnings and shown as a
separate component of shareholders' equity, net of applicable income
taxes.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost and
depreciated over their estimated useful lives. The Company uses the
straight-line and accelerated methods of depreciation, respectively, for
financial statement and income tax reporting purposes.
A summary of the estimated useful lives follows:
Building 40 years
Office furniture and equipment 5 - 7 years
Manufacturing equipment 7 - 8 years
Expenditures for maintenance and repairs which do not materially extend
the useful lives of property and equipment are charged to earnings. When
property or equipment is sold or otherwise disposed of, the cost and
related accumulated depreciation are removed from the respective accounts
with the resulting gain or loss reflected in earnings.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company performs an assessment for
impairment whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. If the net
carrying value exceeds estimated undiscounted future net cash flows, then
impairment is recognized to reduce the carrying value to the estimated
fair value.
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
CERTIFICATION COSTS - The Company has capitalized certain costs associated
with certification of its products. Certification costs are carried at
cost less accumulated amortization. Amortization is taken on the
straight-line basis over five years. Certification costs totalling $17,100
(net) are included in prepaid expenses and other on the balance sheet.
COMPREHENSIVE INCOME (LOSS) - In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income (Loss)". SFAS No. 130,
which is effective for fiscal years beginning after December 15, 1997,
defines comprehensive income as all changes in shareholders' equity
exclusive of transactions with owners, such as capital investments.
Comprehensive income includes net income or loss, changes in certain
assets and liabilities that are reported directly in equity such as
translation adjustments on investments in foreign subsidiaries, and
certain changes in mimimum pension liabilities. The Company's
comprehensive income (loss) was equal to its net income (loss) for all
periods presented in these financial statements.
STOCK-BASED COMPENSATION - As permitted under SFAS No. 123, "Accounting
for Stock-Based Compensation", the Company accounts for its stock-based
compensation in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". As
such, compensation expense is recorded on the date of grant if the current
market price of the underlying stock exceeds the exercise price. Certain
pro forma net income and EPS disclosures for employee stock option grants
are also included in the notes to the financial statements as if the fair
value method as defined in SFAS No. 123 had been applied. Transactions in
equity instruments with non-employees for goods or services are accounted
for by the fair value method.
RENTAL INCOME - The Company leases out the unused portion of the building
which it owns. Rental income and payments are recorded and received on a
monthly basis. Rental income was $184,069 and $101,150 in 1998 and 1997,
respectively.
INCOME TAXES - The Company utilizes the liability method for accounting
for income taxes. The liability method accounts for deferred income taxes
by applying enacted statutory rates in effect at the balance sheet date to
differences between financial statement amounts and tax bases of assets
and liabilities. The resulting deferred income tax liabilities are
adjusted to reflect changes in tax laws and rates. Temporary differences
consist of the difference in financial statement and income tax bases for
property and equipment. Deferred income taxes related to an asset or
liability are classified as current or noncurrent based on the
classification of the related asset or liability.
NET LOSS PER COMMON SHARE - The Company has adopted SFAS No. 128 which
establishes standards for computing and presenting earnings per share
(EPS) for entities with publicly held common stock. The standard requires
presentation of two categories of EPS - basic EPS and diluted EPS. Basic
EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the year. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company. All
potential dilutive securities are antidilutive as a result of the
Company's net loss for the years ended December 31, 1998 and 1997.
Accordingly, basic and diluted EPS are the same for each year.
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", was issued in June 1998.
This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. This statement is effective for the Company's financial statements
for the year ended December 31, 2000 and the adoption of this standard is
not expected to have a material effect on the Company's financial
statements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits, was issued in February 1998. This statement
revises the disclosure requirement for pensions and other postretirement
benefits. This statement is effective for the Company's financial
statements for the year ended December 31, 1998 and the adoption of this
standard is not expected to have a material effect on the Company's
financial statements.
2. GOING CONCERN CONSIDERATIONS
The Company has incurred losses since inception, including $447,225 in
1998 and $861,110 in 1997. Although the current year loss was
significantly reduced from that of the previous year, the Company's loss
history, coupled with a relatively low gross margin business and
substantial general and administrative costs raise substantial doubt about
the Company's ability to continue as a going concern. In an effort to
achieve profitable operations, the Company is currently pursuing the
following activities:
- Seeking acquisition candidates with profitable operations to build the
Company's revenue base.
- Increasing revenue output of existing operations. During the first
quarter of 1999, the Company entered into a sales and marketing
agreement with NS Microwave (the NSM Agreement) that was negotiated as
part of the dissolution of the previously announced purchase agreement
between the two companies. The NSM Agreement is anticipated to produce
an additional element of revenue in the form of microwave products that
can be offered to the Company's existing armor products customer base.
- Reducing non-armor manufacturing related costs and activities associated
with the Company's existing operations. As discussed in Note 11, the
Company sold its manufacturing and administrative facility for
$2,825,000. In conjunction with the sale, the purchaser assumed the
Company's note payable, thereby reducing interest costs. Residual
proceeds of approximately $833,000 from the sale will be used to
facilitate the Company's acquisition plans.
For these reasons, management believes that no adjustments or
reclassifications of recorded assets and liabilities is necessary at this
time.
3. NOTE RECEIVABLE
In conjunction with a failed acquisition in 1998, the Company loaned
$500,000 to a potentially acquired entity. The interest rate is 8%, and
payments of $50,000 principal plus interest are due each month. A 637-acre
parcel of land and a building have been pledged as collateral on the note.
At December 31, 1998, the note balance had been paid down to $400,000.
Subsequent to December 31, 1998, an additional $150,000 has been repaid on
this note.
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998:
Land for Builiding $ 237,339
Building 2,524,780
Manufacturing equipment 74,494
Furniture and fixtures 76,555
Computer equipment 48,637
-----------
2,961,805
Accumulated depreciation (250,770)
-----------
$ 2,711,035
===========
Depreciation expense for the years ended December 31, 1998 and 1997 was
$92,949 and $92,812, respectively.
On March 31, 1999, the Company sold its land and building (see Note 11).
5. NOTES PAYABLE
In March 1998, the Company received, from a commercial entity, a loan of
$1,900,000 to refinance an outstanding note payable of $900,000. The loan
calls for a 10-year term and 20-year amortization schedule and is
collateralized by a first deed of trust on the office and manufacturing
facility in Dulles, Virginia, as well as assignment of all tenant
occupancy leases and essentially all assets of the Company. The commitment
also provides for monthly payments of principal and interest of $15,306,
including interest at 7.5% per annum, with the remaining principal due at
maturity. If the loan is prepaid in full before the first five years of
the loan, the Company will be subject to certain prepayment premiums
computed as a percent of the unpaid balance. This note payable has been
assumed by the purchaser of the land and building (see Note 11).
In February 1997, the Company executed a one year note for $900,000 with a
commercial entity. Interest at 15% annual rate was due monthly. The note
was secured by a first deed of trust on the office and manufacturing
facility in Dulles, Virginia. The note was extended to February 1999. This
note was fully paid off in March 1998 as noted above.
Also included in notes payable is an insurance premium finance agreement
totaling $35,900. The agreement matures in May 1999 and calls for monthly
payments of principal and interest of $5,539 with interest at 8%.
The following is a schedule of future principal payments as of December
31, 1998.
Year ending December 31,
------------------------
1999 $ 80,946
2000 48,578
2001 52,350
2002 56,414
2003 60,793
Thereafter 1,605,122
-----------
1,904,203
Less current portion (80,947)
-----------
$ 1,823,256
===========
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
6. LEASE COMMITMENTS
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 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% increase in base rent annually.
At December 31, 1998, future minimum lease payments receivable are as
follows:
1999 $ 184,600
2000 190,900
2001 197,400
2002 131,500
2003 51,500
Thereafter 3,700
---------
$ 759,600
=========
During February 1997, the Company purchased the land and building it
currently uses for its manufacturing facility and office space. Office
rental expense of $12,100 for the year ended December 31, 1997 is net of
sublease rental income of $36,200.
7. SHAREHOLDERS' EQUITY
The Company has the authority to issue 1,000,000 shares of preferred
stock. The Board of Directors has the authority to issue such preferred
shares in series and determine the rights and preferences of the shares as
may be determined by the Board of Directors. There were no ourstanding
shares of preferred stock in 1998 or 1997.
Current year common stock activity consisted of the exercise of 100,000
options by officers and directors of the Company, and the issuance of
29,630 shares, at market to a company which has a common officer with the
Company.
WARRANTS - In conjunction with the initial public offering in 1996, the
Company issued 814,356 warrants. These warrants have an exercise price of
$15.00 per share and expire in the year 2001. None of these warrants have
been exercised.
STOCK OPTION PLANS - On December 8, 1997, the shareholders approved a
stock option plan authorizing options for 300,000 shares of the Company's
common stock. Under the terms of the plan, the exercise price of
non-qualified options will be the lesser of the book value per share of
the common stock as of the end of the Company's fiscal year immediately
preceeding the date of such grant or 50% of the fair market value per
share of the common stock on the date of such grant. For incentive stock
options, the exercise price shall not be less than fair market value per
share at the date of such grant. Options shall expire on the date
specified by the Board but not more than 10 years from the date of grant
for non-qualified and incentive stock options and options granted to
employees expire 90 days after termination. Following is a summary of
activity under the stock option plan for the years ended December 31, 1998
and 1997:
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
7. SHAREHOLDERS' EQUITY (continued)
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 33,333 $ 1.32 33,333 $ 1.32
Granted 300,000 2.50 - -
Exercised (100,000) 2.50 - -
--------- --------- --------- ---------
Outstanding, end of year 233,333 $ 2.33 33,333 $ 1.32
========= ========= ========= =========
</TABLE>
Of the 300,000 options issued in 1998, 275,000 were issued to officers and
directors of the Company. All of the 100,000 options exercised in 1998
were by officers and directors of the Company.
At December 31, 1998, all options were vested and exercisable. If not
previously exercised or forfeited, all options outstanding at December 31,
1998 will expire in the year ending December 31, 2000 at a weighted
average exercise price of $2.33 per share. At December 31, 1998, the
weighted average remaining contractual life of options outstanding was
approximately 14 months.
Presented below is a comparison of the weighted average exercise price and
fair values of the Company's common stock on the measurement date for all
stock options granted to employees during 1998:
Number of Exercise Fair
Shares Price Value
--------- -------- --------
Market price equal to exercise price 5,000 $ 2.50 $ 2.00
Exercise price greater than market price 295,000 $ 2.50 $ 1.52
--------- -------- --------
300,000 $ 2.50 $ 1.53
========= ======== ========
PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES - The Company applies APB
Opinion 25 and related interpretations in accounting for its stock options
and warrants which are granted to employees. Accordingly, no compensation
cost has been recognized for grants of options and warrants to employees
since the exercise prices were not less than the market value of the
Company's common stock on the grant dates. Had the compensation cost been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS 123, the Company's net loss
and EPS would have been increased to the pro forma amounts indicated
below.
Year Ended
December 31,
-----------------------
1998 1997
---------- ----------
Net loss applicable to common shareholders
As reported $ (447,255) $ (861,110)
Pro forma $ (579,363) $ (861,110)
Net loss per common shareholders
As reported - basic and diluted $ (.40) $ (.77)
Pro forma - basic and diluted $ (.52) $ (.77)
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
7. SHAREHOLDERS' EQUITY (continued)
The fair value of each option granted in 1998 was estimated on the date of
grant, using the Black-Scholes option-pricing model with the following
weighted average assumptions:
Expected volatility 165.2%
Risk-free interest rate 5.5%
Expected dividends -
Expected terms (in years) 2.0
8. INCOME TAXES
There was no provision for income taxes for the years ended December 31,
1998 or 1997 due to net operating losses, and deferred tax assets being
offset by a valuation allowance.
The deferred tax asset for the years ended December 31, are comprised of
the following items:
1998 1997
--------- ---------
Deferred tax assets:
Net operating loss carryforward $ 843,000 $ 703,000
Other 37,000 3,000
--------- ---------
Gross deferred tax assets 880,000 706,000
Deferred tax liability:
Property and equipment (65,000) (63,000)
--------- ---------
Net deferred tax asset 815,000 643,000
Less: deferred tax asset valuation
allowance (815,000) (643,000)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
A reconciliation between the amount of reported Federal income tax benefit
and the amount computed by multiplying the applicable statutory Federal
income tax rate is as follows:
<TABLE>
<CAPTION>
1998 % 1997 %
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Computed expected tax benefit $(152,000) (34)% $(293,000) (34)%
(Increase) decrease in tax
benefit resulting from:
State tax benefit (18,000) (4) (52,000) (6)
Other (2,000) - 80,000 9
Increase (reduction) in valuation allowance
related to net operating loss carryforwards
and change in temporary differences 172,000 38 265,000 31
--------- ------ --------- ------
$ - 0 % $ - 0 %
--------- ------ --------- ------
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $2,200,000 available under provisions of the Internal
Revenue Code to be applied against future taxable income. These
carryforwards are subject to annual limitations on utilization and expire
from December 31, 2010 through December 31, 2018.
<PAGE>
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
9. MAJOR CUSTOMERS
The Company sells its products primarily to authorized dealers for resale
to municipal, county and state law enforcement agencies throughout the
United States. Approximately 2% of sales in 1998 and 4% of sales in 1997
were to foreign governments and agencies.
Percentage of sales to major domestic customers at December 31, are as
follows:
1998 1997
---- ----
U.S. Government Agency 19% 33%
Municipal law enforcement agency 26% 11%
10. MAJOR SUPPLIER CONCENTRATION
The ballistic resistant products of the Company are primarily manufactured
with the raw materials Spectra 1000 woven fabric and Spectra Shield. These
two products are manufactured and distributed only by one company. As of
December 31, 1998 and 1997, Guardian Technologies International, Inc.,
owed $80,600 and $129,400, respectively, to this company.
11. SUBSEQUENT EVENTS
On March 31, 1999, the Company sold its land and building for $2,825,000,
which is greater than its net cost of approximately $2,640,000. In
conjunction with the sale, the purchaser assumed the Company's note
payable which is collateralized by the building, which balance was
approximately $1,857,000 on the date of the sale. The total proceeds to
the Company was approximately $883,000. The Company also signed a 5-year
lease totaling approximately $13,000 per month on the building after it
was sold. In conjunction with the sale, the Company will no longer
recognize rental income nor will it recognize depreciation expense related
to the building or general operating costs attributable to being the owner
of a building.
Subsequent to December 31, 1998, the Company disbursed $861,000
representing a deposit toward the purchase of a 55.16% interest in
Structural Steel Holdings, Inc., a Delaware Corporation that will purchase
100% of the stock of an unrelated company. This transaction is expected to
be consumated in 1999.
<PAGE>
ITEM 8 CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company are listed in the table
below and brief summaries of their business experience and certain other
information with respect to them are set forth thereafter.
NAME AGE POSITION
Oliver L. North........... 55 Chairman of the Board,
President and Secretary
J. Andrew Moorer.......... 36 Chief Operating Officer
Joseph F. Fernandez....... 61 Director, Treasurer and Vice President
Travis Y. Green........... 44 Director
Herbert M. Jacobi......... 59 Director
Hugh E. Sawyer............ 46 Director
John C. Power............. 36 Director
The Company's Articles of Incorporation authorize three (3) classes of
Directors which classes serve for varying terms. The Articles also grant to the
sitting Directors the authority to fill any vacancies on the Board and/or to
appoint members to the Board to fill any vacancies resulting from an increase in
the authorized number of Directors.
Oliver L. North has served as Chairman of the Board, President and
Secretary from inception. He graduated from the United States Naval Academy in
June 1968 and served in the United States Marine Corps for twenty-two years. His
service included a tour of duty in Vietnam where he earned a Silver Star for
heroism, a Bronze Star with a "V" for valor, and two Purple Hearts for wounds in
action. From 1981 through 1986, he served as a member of President Ronald
Reagan's National Security Council staff and became Deputy Director of
Political-Military Affairs. In this capacity, he helped plan the liberation of
Grenada, the capture of terrorists who hijacked the cruise ship Achille Lauro,
and the U.S. raid on Quaddafi's terrorist training camps in Libya. He retired
from the Marine Corps in 1988.
In March, 1988, Mr. North was indicted on charges arising out of the
so-called Iran-Contra affair. Four of the charges were dismissed prior to trial.
On May 4, 1989 Mr. North was acquitted on nine counts and convicted on three in
the United States District Court in Washington, D.C. The convictions were
appealed to the United States Court of Appeals for the District of Columbia
Circuit. On July 20, 1990, the Court of Appeals vacated all the convictions,
reversed one conviction outright, and sent the case back to the District Court.
The Independent Counsel who had brought the case then declined to continue
further prosecution and all remaining charges were dismissed. There are no
outstanding criminal charges or convictions against Mr. North today.
J. Andrew Moorer was named Chief Operating Officer during 1998. He began
his career as a Certified Public Accountant in the Audit and Emerging Business
Services Group of the international accounting firm of PriceWaterhouseCoopers.
Since leaving public accounting in 1987, Mr. Moorer has held various positions
in finance with increasing levels of responxibility, including the position of
Chief Financial Officer for several firms. Mr. Moorer received his formal
education at Loyola College of Maryland.
<PAGE>
Joseph F. Fernandez has served as Vice President, Treasurer and Director
since inception. Mr. Fernandez began his career as a Police Officer with
Miami/Dade County Police Department and served in this position for eight years.
In 1967, he was employed by the U.S. Central Intelligence Agency. In this
capacity, he served in both foreign and domestic posts dealing with highly
sensitive national security issues and intelligence operations. As a Senior
Operations Officer in the Clandestine Services, he directly supervised CIA units
of up to 35 persons in day-to-day operational assignments and planned,
distributed and accounted for budgets in excess of $8 million.
On June 22, 1988, Mr. Fernandez was indicted on five criminal counts
arising out of the so-called Iran-Contra Affair. These indictments were
dismissed without prejudice on October 13, 1988. On April 4, 1989, Mr. Fernandez
was re-indicted in a different venue on four criminal counts arising out of the
Iran-Contra Affair. This indictment was dismissed with prejudice on November 24,
1989. The Independent Counsel lodged an appeal in the U.S. Court of Appeals. In
September, 1990, that Court upheld the dismissal of the indictment, and on
October 5, 1990, the mandate of the Court of Appeals was issued thereby making
final the dismissal of all charges against Mr. Fernandez. There are no
outstanding criminal charges or convictions against Mr. Fernandez today.
Travis Y Green has been a Director since inception. He holds a Masters in
International Business Studies from the University of South Carolina, and he
graduated with a Bachelors Degree in Business Administration from Emory
University. Mr. Green was an Account Executive at Dresdner Bank AG, in New York
in 1978, and continued his financial career at the Wall Street firm of Brown
Brothers Harriman & Co. for 10 years from 1982 through 1992. In 1993, he
established the investment banking firm of Green, Morris & Associates in
Atlanta, Georgia where he serves as President.
Herbert M. Jacobi has been an attorney in private practice in New York, New
York since 1967.
Hugh Sawyer has served as President of National Linen Service, a $500
million in sales subsidiary of National Service Industry, based in Atlanta,
Georgia since early 1996. He was formerly president of Wells Fargo Armored
Services Division of Borg Warner.
John C. Power has served as President and Chief Executive Officer of
Redwood MicroCap Fund, Inc. ("MicroCap") since February, 1992. MicroCap is
registered as an Investment Company under the Investment Company Act of 1940, as
amended (the "40 Act"), but is attempting to de-register from the 40 Act.
MicroCap has majority and/or wholly-owned subsidiaries engaged in oil and gas
exploration, production and management and radio broadcasting. Since November
1996, Mr. Power has been the Managing Member of Northern Lights Broadcasting,
L.L.C., a limited liability company engaged in the acquisition and development
of radio stations in Montana and North Dakota. Since November 1996, Mr. Power
has also been President of Power Surge, Inc. Mr. Power has also served as
president of Power Curve, Inc., a private investment and consulting firm since
1986, and as an officer and director of Signature Wines of Napa Valley, Inc.
from September, 1995 to June 1996. From March, 1994 to September, 1995, Mr.
Power served as a general partner of Signature Wines, a California general
partnership, a predecessor entity of Signature Wines of Napa Valley, Inc. Mr.
Power served as a director of BioSource International, Inc. (NASDAQ:BIOI) from
August, 1993 to December, 1994, of Optimax Industries, Inc. (NASDAQ:OPMX) from
April 1993 to March 1995, and of AirSoft Corporation, a manufacturer of network
communications software and systems, from 1993 to June 1996. Mr. Power received
his formal education at Occidental College and at the University of California
at Davis.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16 (a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who own more than ten
percent of the Common Stock (collectively, "Reporting Persons") to file initial
reports of ownership and changes of ownership of the Common Stock with the SEC
and the NASDAQ Stock Market. Reporting Persons are required to furnish the
Company with copies of all forms that they file under Section 16(a). The Company
is not aware of any failure on the part of any Reporting Persons to timely file
reports required pursuant to Section 16(a).
ITEM 10 EXECUTIVE COMPENSATION
The following table sets forth the executive compensation and distribution
paid to each executive officer of the Company during the years ended December
31.
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
--------------------------- ----------------------------------
Name Year Restricted Restricted
Principal Ended Other Stock Options LTIF All other
Other Position December Salary Bonus Compensation Awards SARA Payouts Compensations
- ----------------------- -------- ------- ----- ------------ ------ ---- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oliver L. North 1998 $ 0 -- -- -- -- -- (1)
President and Secretary 1997 $ 16,014 -- -- -- -- -- (1)
J. Andrew Moorer 1998 $ 0 -- -- -- -- -- (1)
Chief Operating Officer
Joseph F. Fernandez 1998 $ 70,327 -- -- -- -- -- (1)
Vice President 1997 $ 72,849 -- -- -- -- -- (1)
</TABLE>
The above table reflects salary expenses as recorded on the Company's financial
statements in according with generally accepted accounting principles. As such,
the amounts may differ from the base salary rates discussed below.
EMPLOYMENT CONTRACTS
Effective January 1, 1997, the employment agreements of the President and Vice
President were amended to reduce the base salaries payable to each to $77,900
for 1997 only. Subsequently, the Compensation Committee reduced the base salary
of the President to $21,150 for 1997 only. During 1998, the Compensation
Committee further reduced the base salaries of the president and vice president
to $0 and $73,500 respectively.
The Board or Compensation Committee, in their sole discretion, may award bonuses
to the officers. The amended agreements include provisions for additional
compensation payable to the officers in the event of termination of employment
without cause, or upon change of control of the Company.
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 9, 1999
with respect to the beneficial ownership of shares of Common Stock by (i) each
stockholder known by the Company to be the beneficial owner of more than five
percent (5%) of the outstanding shares of Common Stock; (ii) each director of
the Company; (iii) each executive officer named in the Summary Compensation
Table appearing below under "Executive Compensation", and (iv) all executive
officers and directors as a group. Except as indicated in the footnotes to the
table, persons named in the table have sole voting and investment power with
respect to all shares of Common Stock which they respectively own beneficially.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned* of Class*
------------------- ------------------- ---------
Oliver L. North (1) 212,990 15.7%
Rt. 1, Box 560
Bluemont, VA 20135
Joseph F. Fernandez (2) 114,355 8.4%
9542 Whitecedar Court
Vienna, VA 22180
Herbert M. Jacobi(3) 20,000 1.5%
8 West 38th Street
New York, NY 10018
J. Andrew Moorer(3) 30,000 2.2%
11 Sundial Circle, Suite 17
Carefree, AZ 85377
All Officers and Directors
as a Group (7 persons) 377,345 27.8%
* Under applicable rules of the Securities and Exchange Commission
(the "SEC"), a person is deemed to be the beneficial owner of a share
of Common Stock if, among other things, he or she directly or
indirectly has or shares voting power or investment power with respect
to such shares. A person is also considered to beneficially own
shares of Common Stock which he or she does not actually own but has
the right to acquire presently or within the next sixty (60) days, by
exercise of warrants or otherwise. The percentage of ownership was
determined by assuming that all Warrants held by this securityholder
have been exercised and that Warrants held by other securityholders
have not been exercised.
<PAGE>
(1) Represents 66,356 shares owned of record by the Oliver North Irrevocable
Trust, 72,675 owned by the Oliver North Guarantor Annuity Trust, 1,580
shares owned by the Elizabeth North General Partnership, 15,799 shares
owned by the Elizabeth North Limited Partnership and 1,580 shares owned by
the Oliver North General Partnership (hereafter the "Trusts" and
"Partnership", respectively). Although Mr. North is not a beneficiary of
any of the Trusts, he continues to maintain voting control over all shares
owned beneficially by the Trusts. Also includes incentive stock options
exercisable to purchase, in the aggregate, 55,000 shares of the Company's
common stock at an exercise price of $2.50 per share granted to Mr. North
under the Company's 1997 Incentive Stock Option Plan (the "Plan").
(2) Represents 94,355 shares owned by Charles Anthony Gidden Fernandez
(13,334), Dale Gidden Fernandez (1,017), John David Gidden Fernandez
(13,334), Joseph Culver Gidden Fernandez (13,334), Michael Louis Gidden
Fernandez (13,334), Dale Gidden Fernandez C/F Andrew Francis Gidden
Fernandez (13,334), Catherine Marie Gidden Fernandez Gros (13,334) and
Elizabeth Anne Gidden Fernandez (13,334). Notwithstanding the foregoing,
Mr. Fernandez continues to retain voting control over all shares owned by
Mr. Fernandez' children. Also includes incentive stock options exercisable
to purchase, in the aggregate, 20,000 shares of the Company's common stock
at an exercise price of $2.50 per share granted under the Plan.
(3) Includes stock options exercisable to purchase shares of the Company's
common stock at an exercise price of $2.50 per share granted under the
Company's stock option plan in the following amounts: Jacobi - 20,000; and
Moorer - 20,000.
<PAGE>
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- ---------------------------------------------
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Form of Common Stock Certificate.*
4.2 Form of Warrant.*
10.1 Employment Agreement between the Company and Oliver L. North.**
10.2 Employment Agreement between the Company and Joseph F. Fernandez.**
10.3 Revolving Line of Credit Agreement dated December 7, 1995 among the
Company, Creditanstalt Corporate Finance, Inc. and Oliver L. North,
as Guarantor.**
10.4 Promissory Note dated December 7, 1995 from the Company to
Creditanstalt Corporate Finance, Inc.**
10.5 Guaranty dated December 7, 1995 from Oliver L. North to
Creditanstalt Corporate Finance, Inc.**
10.6 Amendment dated November 26, 1996 relating to Revolving Loan of
Credit Agreement among the Company, Creditanstalt Corporate
Finance, Inc. and Oliver L. North, as Guarantor.**
10.7 Margin Agreement dated June 24, 1996 between the Company and
Pershing, Division of Donaldson, Lufkin & Jenrette Securities
Corporation.**
10.8 Promissory Note dated February 7, 1997 from the Company to Dashco,
Inc.**
10.9 Deed of Trust between the Company and Marc A. Busman and Rosalyn R.
Busman, Trustees.**
10.10 Deed of Lease dated January 23, 1997 between the Company, as
Landlord, and Freedom Alliance, as Tenant.**
10.11 Letter re: Line of Credit facility between the Company and Adler
Financial Group.**
10.12 Letter re: Loan commitment between the Company and The Baltimore
Life Insurance Company/Life of Maryland, Inc.***
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule
- --------------------------------
* Filed as an Exhibit to the Company's Registration Statement on Form SB-2
dated March 22, 1996 (Reg. No. 333-2712-NY) and incorporated herein by
reference.
** Filed as an Exhibit to the Company's 1996 Form 10-KSB dated April 15, 1997
and incorporated herein by reference.
*** Filed as an Exhibit to the Company's 1997 Form 10-KSB dated March 31, 1998
and incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GUARDIAN TECHNOLOGIES INTERNATIONAL, INC.
(Registrant)
Date: April 12, 1999 By: /s/ Joseph F. Fernandez
---------------------------
Joseph F. Fernandez
Director, Treasurer and
Vice President
In accordance with the Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Oliver L. North Date: April 12, 1999
---------------------------------------
Oliver L. North
Chairman of the Board,
President and Secretary
By: /s/ J. Andrew Moorer Date: April 12, 1999
---------------------------------------
J. Andrew Moorer
Chief Operating Officer
By: /s/ Joseph F. Fernandez Date: April 12, 1999
---------------------------------------
Joseph F. Fernandez
Director, Treasurer and
Vice President
By: /s/ Travis Y. Green Date: April 12, 1999
---------------------------------------
Travis Y. Green
Director
By: /s/ Herbert M. Jacobi Date: April 12, 1999
--------------------------------------
Herbert M. Jacobi
Director
By: /s/ Hugh E. Sawyer Date: April 12, 1999
---------------------------------------
Hugh E. Sawyer
Director
By: /s/ John C. Power Date: April 12, 1999
---------------------------------------
John C. Power
Director
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- ---------------------------------------------
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Form of Common Stock Certificate.*
4.2 Form of Warrant.*
10.1 Employment Agreement between the Company and
Oliver L. North.**
10.2 Employment Agreement between the Company and of
Joseph F. Fernandez.**
10.3 Revolving Line of Credit Agreement dated December 7, 1995
among the Company, Creditanstalt Corporate Finance, Inc.,
and Oliver L. North, as Guarantor.**
10.4 Promissory Note dated December 7, 1995 from the Company to
Creditanstalt Corporate Finance, Inc.**
10.5 Guaranty dated December 7, 1995 from Oliver L. North to
Creditanstalt Corporate Finance, Inc.**
10.6 Amendment dated November 26, 1996 relating to Revolving
Loan of Credit Agreement among the Company,
Creditanstalt Corporate Finance, Inc. and
Oliver L. North, as Guarantor.**
10.7 Margin Agreement dated June 24, 1996 between the Company
and Pershing, Division of Donaldson, Lufkin & Jenrette
Securities Corporation.**
10.8 Promissory Note dated February 7, 1997 from the Company
to Dashco, Inc.**
10.9 Deed of Trust between the Company and Marc A. Busman and
Rosalyn R. Busman, Trustees**
10.10 Deed of Lease dated January 23, 1997 between the Company,
as Landlord, and Freedom Alliance, as Tenant.**
10.11 Letter re: Line of Credit facility between the Company
and Adler Financial Group.**
10.12 Letter re: Loan Commitment between the Company and
The Baltimore Life Insurance Company/Life of Maryland,
Inc.***
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule
- --------------------------------
* Filed as an Exhibit to the Company's Registration Statement on Form SB-2
dated March 22, 1996 (Reg. No. 333-2712-NY) and incorporated herein by
reference.
** Filed as an Exhibit to the Company's 1996 Form 10-KSB dated April 15, 1997
and incorporated herein by reference.
*** Filed as an Exhibit to the Company's 1997 Form 10-KSB dated March 31, 1998
and incorporated herein by reference.
<PAGE>
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
1998 1997
--------- ---------
Primary Earnings Per Share
Net Income ($447,255) ($861,110)
Shares:
Weighted Average Common
Shares Outstanding 1,120,310 1,114,201
Effect of Shares Issuable Upon Exercise
of Warrants 0 0
Effect of Shares Issuable Upon Exercise
of Options 0 0
Adjusted Common Shares and Equivalents 1,120,310 1,114,201
Earnings Per Share - Primary ($0.40) ($0.77)
Fully Diluted Earnings per Share:
Net Income ($447,255) ($861,110)
Shares:
Weighted Average Common
Shares Outstanding 1,120,310 1,114,201
Effect of Shares Issuable Upon
Exercise of Warrants 0 0
Effect of Shares Issuable Upon Exercise
of Options 0 0
Adjusted Common Shares and Equivalents 1,120,310 1,114,201
Earnings Per Share - Fully Diluted ($0.40) ($0.77)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 585,937
<SECURITIES> 0
<RECEIVABLES> 593,718
<ALLOWANCES> 0
<INVENTORY> 180,786
<CURRENT-ASSETS> 1,530,634
<PP&E> 2,961,805
<DEPRECIATION> 250,770
<TOTAL-ASSETS> 4,241,669
<CURRENT-LIABILITIES> 286,880
<BONDS> 0
0
0
<COMMON> 1,244
<OTHER-SE> 2,130,289
<TOTAL-LIABILITY-AND-EQUITY> 4,241,669
<SALES> 1,656,649
<TOTAL-REVENUES> 1,656,649
<CGS> 1,377,977
<TOTAL-COSTS> 2,075,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,717
<INCOME-PRETAX> (447,255)
<INCOME-TAX> 0
<INCOME-CONTINUING> (447,255)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (447,255)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
