U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X _____ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1996
Transition report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (No fee required)
For the transition period from to
Commission file number 1-11586
PTI HOLDING INC.
(Name of small business issuer in its charter)
Delaware 13-3590980
(State or jurisdiction
(I.R.S.Employer
of incorporation or Identification No.)
organization)
c/o 15 E. North Street, Dover, DE 19901
- ---------------------------------------- -------
(Address of principal executive offices) (Zip Code)
(302) 678-0855
(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 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 past 90 days.
Yes X No
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of November 13,
1996, 3,487,936 shares of the issuer's common equity were outstanding.
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PART I
ITEM 1. Consolidated Financial Statements.
Page
Consolidated Balance Sheet as of September 30, 1996 8
Consolidated Statement of Income for the three
and nine months ended September 30, 1996 and 1995 9
Consolidated Statement of Cash Flows for the
nine months ended September 30, 1996 and 1995 10
Notes to Consolidated Financial Statements 11-12
ITEM 2. Management's Discussion and Analysis
PTI Holding Inc. (collectively with its wholly-owned subsidiaries
referred to herein as the "Company"), formally known as Aerial Assault Inc., was
incorporated under the laws of Delaware in March 1990. Until February 28, 1994,
the Company was engaged in the business of designing, developing and marketing
distinctive, high-performance men's athletic footwear for basketball, and
related apparel bearing the Aerial Assault Inc. name and logo. The Company
commenced sales in February 1992.
On March 1, 1994, the Company acquired Foam-O-Rama, Inc., a New York
corporation ("Foam"), which is principally engaged in the business of the
design, marketing and sale of bicycle helmets, by merging it with and into the
Company's wholly owned subsidiary, Protective Technologies International Inc., a
New York corporation (the "Operating Subsidiary"), pursuant to a Merger
Agreement and Plan of Reorganization dated February 14, 1994 among the Operating
Subsidiary, Foam and Foam's shareholders. From and after March 2, 1994, Foam had
no separate or independent existence, having been merged into the Operating
Subsidiary. For purposes of the transfer of the economic benefits and risks of
such transaction and the ongoing business of Foam, the acquisition was deemed to
have occurred as of the opening of business on January 1, 1994.
The Company is a bicycle helmet manufacturer. In addition to helmets, the
Company also markets and distributes bicycles and bicycle-related products.
Results of Continuing Operations
Third Quarter 1996 Compared to Third Quarter 1995
The Company's net sales were $4,087,524 during the quarter ended
September 30, 1996, an increase of 114% from net sales of $1,906,634 during the
comparable quarter in 1995. The 114% sales increase from 1995 to 1996 resulted
primarily from increased sales to existing customers through the addition of new
helmet models, from the expansion of the Company's bicycle accessories business,
and also from the addition of new customers.
Taking into account the third quarter sales increases, management
anticipates that 1996 sales will increase more than 85% compared to 1995 sales.1
This increase is expected to result from the Company's increasing its market
share at the expense of competitors, from introducing new accessory product
lines, and from the Company's license arrangements with Hasbro, Inc., to
manufacture and market helmets, bicycles and bicycle accessories under the
PlayskoolTM brand name.
Net income was $158,750 for the quarter ended September 30, 1996,
compared to a net income of $70,433 during the same period in 1995. The increase
in net income was due to higher sales levels, and lower selling general and
administrative expenses as a percentage of sales.
Although the Company has projected sales for 1996, a net income
projection has not been provided because of the uncertainties involved in the
competitive nature of the helmet market.
The cost of sales for the quarter ended September 30, 1996 was $3,142,180
(resulting in a gross profit margin of 23.13%) compared to the Company's cost of
sales of $1,232,525 (resulting in a gross profit margin of 35.36%) for the
quarter ended September 30, 1995. The decrease in the gross profit margin is due
primary to the increased volume of the accessories business which has a lower
gross profit margin than the helmet business.
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Selling, general and administrative expenses for the quarter ended
September 30, 1996 were $687,080 compared to the Company's selling, general and
administrative expenses of $617,804 for the quarter ended September 30, 1995. As
a percentage of sales, these expenses were 16.81% and 32.4% for the quarters
ended September 30, 1996 and 1995, respectively. The decreased ratio of selling,
general and administrative spending to sales is in part due to the fact that the
Company's sales grew faster than its increases in fixed overhead.
Nine Months Ended 9/30/96 Compared to Nine Months Ended 9/30/95
The Company's net sales were $13,532,363 during the nine months ended
September 30, 1996, an increase of 108% from net sales of $6,506,019 during the
comparable nine months in 1995. The 108% sales increase from 1995 to 1996
resulted primarily from increased sales to existing customers through the
addition of new helmet models, from the expansion of the Company's bicycle
accessories business, and also from the addition of new customers.
Net income was $1,286,119 during the nine months ended September 30,
1996, compared to a net income of $509,441 during the same period in 1995. The
increase in net income was due to higher sales levels and lower selling general
and administrative expenses as a percentage of sales.
The cost of sales for the nine months ended September 30, 1996 was
$9,717,716 (resulting in a gross profit margin of 28.19%) compared to cost of
sales of $4,374,531 (yielding a gross profit margin of 32.8%) for the nine
months ended September 30, 1995. The decrease in the gross profit margin is due
primary to the increased volume of the accessories business which has a lower
gross profit margin than the helmet business.
Selling, general and administrative expenses for the nine months ended
September 30, 1996 were $1,901,156 compared to the Company's selling, general
and administrative expenses of $1,656,956 for the nine months ended September
30, 1995. As a percentage of sales, these expenses were 14.05% and 25.47% for
the nine months ended September 30, 1996 and 1995, respectively. The decreased
ratio of selling, general and administrative spending to sales is in part due to
the fact that the Company's sales grew faster than its increases in fixed
overhead.
Capital Resources
The Company has satisfied its capital requirements through the proceeds
of its initial public offering of securities, which resulted in net proceeds of
approximately $3,800,000, through the proceeds of a Regulation 'S' private
placement in November 1994, which resulted in gross proceeds of approximately
$751,875, through the exercise of certain outstanding options held by employees
and consultants of the Company, which resulted in net proceeds of approximately
$175,075, through internal cash flow and, recently, through the Operating
Subsidiary's opening of a revolving line of credit.
The Company pays its employees and vendors on a weekly, monthly or
bimonthly basis, while its customers pay for products on an average of 70 days
after shipment and, therefore, the Company has substantial needs for working
capital. As of September 30, 1996, the Company had $449,278 of cash available
for its cash needs, compared to cash of $385,850 as of September 30, 1995.
On May 6, 1996, the Operating Subsidiary established a revolving line of
credit at Key Bank of New York. The line of credit is collateralized by the
Operating Subsidiary's inventory, receivables and other assets, and guaranteed
by the Company and Protective Technologies of America, Inc., a wholly-owned
subsidiary (nonoperating) of the Company. The Company does not currently have
any
outstanding loans pursuant to such line of credit.
The Company will also consider financing through additional public and
private securities offerings and solicitations.
Based on the Company's current plans, management anticipates that current
cash balances, together with the Company's line of credit and cash flow
generated from operations, will be sufficient to continue to fund production,
purchase of equipment, increased marketing activities and continued research and
development, as well as the rest of the Company's cash requirements, for
approximately the next 18 months.
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PART II
ITEM 5. Other Information.
The Board of Directors of the Company held a special meeting on October
22, 1996. In accordance with its bylaws, the Company increased the size of its
Board of Directors from three directors to five directors. Each of the two newly
appointed directors will hold office until the next Annual Meeting of the
Company's shareholders, and until his successor has been duly elected and
qualified, or as otherwise provided in the Company's bylaws.
The Directors of the Company have appointed the following individuals to
fill the vacancies created by increasing the size of the Board of Directors:
Warren Schaeffer. Mr. Schaeffer, age 39, co-founded Foam, the company
acquired by the Company in March, 1994. Since the acquisition, he has served as
the President of the Operating Subsidiary. Prior to his employment by the
Operating Subsidiary, Mr. Schaeffer was the President and a director of Foam.
Myles Birrittella. Mr. Myles Birrittella, age 33, is currently employed
at GE Capital. Mr. Myles Birrittella is the brother of Meredith W. Birrittella,
the Company's Chief Executive Officer, and the brother of Martin P. Birrittella,
the Chairman of the Company.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Registrant's Articles of Incorporation, as amended, incorporated
by reference to the like numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No. 33-53466
3.2 Registrant's By-Laws, incorporated by reference to the like
numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-53466
4.1 ______ Resolution of Designation, Powers, Preferences and Rights
of Series A Preferred Stock, incorporated by reference to the
like numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-53466
4.2 ______ Form of Warrant of Bridge Loan lenders, incorporated by
reference to the like numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No.
33-53466
4.3 ______ Form of Warrant included in Units, incorporated by
reference to the like numbered exhibit in the Registrant's
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, File No.
33-53466
4.4 Form of Underwriter's Warrant, incorporated by reference to the
like numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-53466
4.5 Omitted
10.1 Omitted
10.2 Omitted
10.3 Omitted
10.4 Omitted
10.5 Omitted
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10.6 Omitted
10.7 Omitted
10.8 Omitted
10.9 Warrant Agreement dated , 1992 between Corporate Stock
Transfer, Inc. and the Company, incorporated by reference to the
like numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-53466
10.10 Omitted
10.11 Omitted
10.12 Omitted
10.13 Omitted
10.14 ____ Form of Stock Option granted to employees, independent
contractors and consultants, incorporated by reference to the
like numbered exhibit in the Registrant's Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended, File
No. 33-53466
10.15 ____ Merger Agreement and Plan of Reorganization dated February
14, 1994 among ____ Protective _____ Technologies _____
International ____ Inc., Foam-O-Rama, Inc., Ellen Schaeffer and
Lori Hillsberg, as amended, incorporated by reference to exhibit
number 2 in the Registrant's Current Report on Form 8-K dated
March 16, 1994 under the Securities Exchange Act of 1934, as
amended
10.16 Noncompetition Agreement dated March 1, 1994 between Protective
Technologies International Inc. and Ellen Schaeffer and Lori
Hillsberg, incorporated by reference to exhibit number 99.1 in
the Registrant's Current Report on Form 8-K dated March 16, 1994
under the Securities Exchange Act of 1934, as amended
10.17 Noncompetition Agreement dated March 1, 1994 between Protective
Technologies International Inc. and Warren Schaeffer and Alan
Hillsberg, incorporated by reference to exhibit number 99.2 in
the Registrant's Current Report on Form 8-K dated March 16, 1994
under the Securities Exchange Act of 1934, as amended
10.18 Omitted
10.19 Omitted
10.20 Omitted
10.21 ____ Form of Promissory Note memorializing loans from directors
and officers as authorized by the Board of Directors on March
13, 1996, incorporated by reference to the like numbered exhibit
in the Registrant's Annual Report on Form 10-KSB for the period
ended December 31, 1995 under the Securities Exchange Act of
1934, as amended
10.22 ____ Guarantee from Warren Schaeffer and Alan Hillsberg to
Protective Technologies International Inc., incorporated by
reference to exhibit number 10.21 in the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1995,
under the Securities Exchange Act of 1934, as amended
10.23 ____ Exclusive License and Purchase Guarantee Agreement, dated
July 19, 1994 between Toy Biz, Inc. and the Registrant,
incorporated by reference to exhibit number 10.22 in the
Registrant's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1995, under the Securities Exchange Act of
1934, as amended
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10.24 ____ Amendment #1 dated October 18, 1995 to Warrant Agreement,
incorporated by reference to exhibit number 10.23 in the
Registrant's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1995, under the Securities Exchange Act of
1934, as amended
10.25 Line of Credit Agreement (Asset Based), dated May 6, 1996, among
Key Bank of New York, Protective Technologies International
Inc., PTI Holding Inc. and Protective Technologies of America
Inc., and collateral loan documents thereto, incorporated by
reference to like numbered exhibit in the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 1996,
under the Securities Exchange Act of 1934, as amended
10.26 ____ Amendment ____ #2 dated June 6, 1996 to Warrant ____
Agreement, incorporated by reference to exhibit number 2 in the
Registrant's Current Report on Form 8-K dated July 9, 1996,
under the Securities Exchange Act of 1934, as amended
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the period ended
September 30, 1996.
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<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November , 1996
PTI HOLDING INC.
By:
Meredith W. Birrittella,
Chief Executive Officer (authorized signatory)
Chief Financial Officer
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<TABLE>
<CAPTION>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
SEPTEMBER 30, 1996
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 449,278
Accounts receivable, net of allowance for returns and 2,755,212
doubtful collections of $65,748
Inventories 2,984,605
Advances toward inventory purchases 326,170
Deferred tax asset 67,600
Prepaid expenses and other current assets 801,475
---------------
Total current assets 7,384,340
Equipment and improvements, net of accumulated 455,394
depreciation of $696,759
Deferred tax asset 93,200
Goodwill, net of accumulated amortization of $115,468 1,354,128
Covenants not to compete, net of accumulated 213,655
amortization of $305,045
Patents, net of accumulated amortization of $741 4,305
---------------
$ 9,505,022
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,646,394
Current portion of due to former key employee and 25,000
shareholder of acquired company
Income taxes payable 610,880
---------------
Total current liabilities 2,282,274
---------------
Due to former key employee and shareholder of acquired 58,750
company, net of current portion
---------------
Commitments and contingent liabilities
Series A preferred stock, $.001 par value; issued and
outstanding 25,000 shares, redeemable at liquidation 2,500
value of $.10 per share (aggregating $2,500)
---------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 100,000 -
shares of which 25,000 shares have been designated
as Series A preferred
Common stock, $.01 par value; authorized 10,000,000 34,784
shares, issued and outstanding 3,478,436 shares
Capital in excess of par 6,405,052
Retained earnings 721,662
---------------
Total stockholders' equity 7,161,498
---------------
$ 9,505,022
===============
</TABLE>
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<TABLE>
<CAPTION>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
THREE & NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Three Months ended Nine Months ended
September 30, September 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 4,087,524 $ 1,906,634 $ 13,532,363 $ 6,506,019
Cost of sales 3,142,180 1,232,525 9,717,716 4,374,531
------------ ------------ ------------ ------------
Gross profit 945,344 674,109 3,814,647 2,131,488
Selling, general and 687,080 617,804 1,901,156 1,656,956
administrative expenses
------------ ------------ ------------ ------------
Income from operations 258,264 56,305 1,913,491 474,532
Interest income, net of 22,166 14,128 12,708 34,909
interest (expense)
------------ ------------ ------------ ------------
Income before income taxes 280,430 70,433 1,926,199 509,441
------------ ------------ ------------ ------------
Income tax expense (benefit)
Current 134,080 - 610,880 -
Deferred (12,400) - 29,200 -
------------ ------------ ------------ ------------
121,680 - 640,080 -
------------ ------------ ------------ ------------
Net income $ 158,750 70,433 $ 1,286,119 $ 509,441
============ ============ ============ ============
Net income per share of $ .04 .02 $ .33 $ .15
common stock
============ ============ ============= ============
Weighted average shares 4,216,889 3,365,506 3,891,973 3,330,900
outstanding
============ ============ ============ ============
</TABLE>
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<TABLE>
<CAPTION>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,286,119 $ 509,441
Adjustments to reconcile net income to net
cash (used in) operating activities:
Provision for returns and doubtful 4,252 (216,000)
collections
Depreciation 236,739 163,581
Amortization of intangible assets 109,519 109,519
Deferred income taxes 29,200 -
Deferred compensation - 37,500
(Increase) decrease in operating assets:
Accounts receivable (1,588,326) 22,714
Inventories (1,315,469) (841,366)
Advances toward inventory (326,170) -
purchases
Prepaid expenses and other current (521,121) (201,332)
assets
Increase in operating liabilities:
Accounts payable and accrued 913,985 186,431
expenses
Income taxes payable 610,880 -
------------ ------------
Net cash (used in) operating activities (560,392) (229,512)
------------ ------------
Cash flows from investing activities:
Purchase of equipment and improvements (325,538) (187,789)
Reduction in cash invested to secure letters 208,750 208,750
of credit
------------ ------------
Net cash provided by (used in) investing (116,788) 20,961
activities
------------ ------------
Cash flows from financing activities:
Payments of amounts due to former key
employees and shareholders of acquired (41,309) (217,747)
company
Proceeds from issuance of common stock 198,438 107,500
------------ ------------
Net cash provided by (used in) financing 157,129 (110,247)
activities
------------ ------------
Net decrease in cash and cash equivalents (520,051) (318,798)
Cash and cash equivalents, beginning of period 969,329 704,648
------------ ------------
Cash and cash equivalents, end of period $ 449,278 $ 385,850
============ ============
Supplemental disclosures:
Interest paid $ 24,074 $ -
Income taxes paid 4,160 -
</TABLE>
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PTI HOLDING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation:
The consolidated financial statements included herein have been prepared
by the Company, without the benefit of an audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995 and filed with the Securities and Exchange
Commission.
In the opinion of the Company's management, these unaudited consolidated
financial statements include all adjustments, consisting solely of
normal recurring adjustments, necessary in order to present fairly the
Company's consolidated financial position as of September 30, 1996 and
the consolidated results of their operations for the three & nine months
ended September 30, 1996 and 1995 and their consolidated cash flows for
the nine months ended September 30, 1996 and 1995. The results of
operations for an interim period are not necessarily indicative of the
results to be attained in any other fiscal period.
Common shares contingently issuable are excluded from the computation of
weighted average shares outstanding since conditions for issuance have
not been met and/or their inclusion would have had an antidilutive
effect.
During March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of." The Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
full recoverability is questionable. Management evaluates the
recoverability of goodwill and other long-lived assets and several
factors are used in the valuation including, but not limited to,
management's plans for future operations, recent operating results and
projected cash flows. The Company adopted SFAS No. 121 in the first
quarter of 1996, the adoption of which did not have a material adverse
effect on the results of operations or financial condition.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." The Company will
adopt the new disclosure requirements beginning with the year ending
December 31, 1996.
2. Contingent liabilities:
Effective April 1, 1994, the Company entered into a two-year,
noncancellable lease for a production, warehouse, and office facility.
The lease calls for the minimum annual rent of $76,000 plus escalation
charges for increases in real estate taxes. By notice in October 1994,
the Company ceased making rental payments and terminated such lease
because the lessor failed to obtain a certificate of occupancy. However,
the Company continued to occupy the space through September 1995 until
it relocated to a new facility. The landlord has commenced a suit
against the Company for unpaid rent and for funds to make repairs.
The resolution of this matter is presently uncertain. However, any
possible settlement is not expected to have a material effect on the
financial position and results of operations of the Company if concluded
unfavorably.
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<PAGE>
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the
opinion of management, all matters are without merit or of such kind, or
involve such amounts, as would not have a material effect on the
financial position and results of operations of the Company if concluded
unfavorably.
While the Company has not experienced any product liability claims, it
presently cannot be determined if its product liability insurance is
adequate to cover any losses that may arise.
3. Series A preferred stock:
The Series A preferred stock issued on July 31, 1992 bears stock
issuance rights entitling the holder thereof to the issuance of 10
shares of common stock, up to a maximum aggregate amount of 30 shares of
common stock, for each share of Series A preferred stock for each of the
following conditions that are met: The Company has net income of
$750,000 during any of the three complete fiscal years immediately after
the date of the public offering (December 1992); the Company has gross
revenue of $20,000,000 during any of the five complete fiscal years
after the date of the public offering; the Company has gross revenue of
$35,000,000 during any of the five complete fiscal years after the date
of the public offering; and a cumulative total of 50% of the warrants
issued in the public offering have been exercised.
If the period during which the shares of common stock are issuable
lapses and each series A preferred stockholder has not been issued 30
shares of common stock, then each share of Series A preferred is to be
redeemed at the liquidation preference price of $.10 per share. All
shares of common stock issuable with respect to the Series A preferred
stock and not previously issued is to be issued if the Company is
acquired, provided that if the common stock continues to be publicly
traded, the average bid price during the prior 90 days is greater than
or equal to $5.00 per share (the initial public offering price of the
common stock).
For the year ended December 31, 1995, the Company had net income in
excess of $750,000. Accordingly, the Series A preferred shareholders
were entitled to 10 shares of the common stock for each Series A
preferred share owned. However, three preferred shareholders holding an
aggregate of 23,552 preferred shares relinquished their right to receive
an issuance of an aggregate of 235,520 shares of the company's common
stock. In consideration for relinquishing their rights to that common
stock, the Company granted the three preferred shareholders options to
acquire an aggregate of 235,520 shares of the common stock. The options
have an exercise price of $4.50 (the quoted market price on the
effective date of grant), are exercisable commencing in January, 1996
and expire in January, 2006. The three preferred shareholders are also
directors and major common stockholders of the company. The remaining
14,480 common shares were issued to the other preferred stockholders in
1996.
4. Line of credit agreement:
On May 6, 1996, the Company entered into a line of credit agreement with
a bank. Under the terms of the agreement, the Company may borrow up to
$7,000,000 based on the a percentage of certain accounts receivable and
inventories as defined in the agreement. All borrowings are due on
demand, and are collateralized by the company's accounts receivable,
inventories and other assets. At September 30, 1996, the Company had no
outstanding liability pursuant to the line of credit agreement.
Footnotes:
1 Although the Company is currently unaware of any potential setbacks,
certain situations may arise which would cause the Company's results to differ
materially from its projections. These situations may include, but are not
limited to: (i) the emergence of stronger than anticipated competition in the
helmet market; (ii) the failure of one or more of the Company's new accessory
product lines; (iii) disputes arising between the Company and its licensors
and/or customers; and (iv) the loss of one or more of the Company's key
personnel.
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