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 3/31/97
- - ---- 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 May 1, 1997,
3,527,936 shares of the issuer's common equity were outstanding.
<PAGE>
PART I
ITEM 1. Consolidated Financial Statements.
Page
---------
Consolidated Balance Sheet as of March 31, 1997 F-1
Consolidated Statement of Income for the three
months ended March 31, 1997 and 1996 F-2
Consolidated Statement of Cash Flows for the
three months ended March 31, 1997 and 1996 F-3
Notes to Consolidated Financial Statements F-4 - F-6
ITEM 2. Management's Discussion and Analysis
Results of Continuing Operations: First Quarter 1997 Compared to First Quarter
1996
- - --------------------------------------------------------------------------------
The Company's net sales were $6,229,506 during the quarter ended March
31, 1997, an increase of 137% from net sales of $2,623,860 during the comparable
quarter in 1996. The 137% sales increase from 1996 to 1997 resulted from several
factors: increased sales to existing customers through the addition of new
helmet models; increased market share at the expense of competitors; increased
sales in existing models due to growth in the overall helmet market; increased
sales of the Company's bicycle and bicycle accessories; the addition of new
retail outlets for the Company's products; and the introduction of new accessory
product lines.
Net income was $758,971 for the quarter ended March 31, 1997, compared
to a net income of $243,275 during the same period in 1996. The increase in net
income was due to higher sales, lower selling general and administrative
expenses as a percentage of sales, and new retail relationships.
The cost of sales for the quarter ended March 31, 1997 was $3,937,393,
resulting in a gross profit margin of 37%, compared to the Company's cost of
sales for the quarter ended March 31, 1996 of $1,811,559, resulting in a gross
profit margin of 31%. The Company's increased gross profit margin resulted
primarily from the fact that higher-margin products, such as bicycle
accessories, constituted a greater percentage of the Company's sales for the
first quarter of 1997 than for the first quarter of 1996.
Selling, general and administrative expenses for the quarter ended
March 31, 1997 were $964,836 compared to the Company's selling, general and
administrative expenses of $620,038 for the quarter ended March 31, 1996. As a
percentage of sales, these expenses were 15.49% and 23.6% for the quarters ended
March 31, 1997 and 1996, respectively. The increased selling, general and
administrative spending was primarily due to the higher costs associated with
the expansion of the helmet, bicycle and bicycle accessory business, and the
higher costs for human resources. As a percentage of sales, however, selling,
general and administrative spending decreased from the first quarter of 1996. As
the Company's sales grow faster than its increases in fixed overhead, the
Company should continue to see its selling, general and administrative expenses
as a percentage of sales decrease.
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
$220,450, through internal cash flow, and through the Operating Subsidiary's
opening of a revolving line of credit in May, 1996.
The Company pays its employees and vendors on a weekly, monthly or
bimonthly basis, while its customers pay for products on an average of 75 days
after shipment, and therefore the Company has substantial needs for working
capital.
On May 6, 1996, the Operating Subsidiary opened 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. As of March 31, 1997 the Company had $2,820,253 outstanding
pursuant to such line of credit.
The Company will also consider financing through additional public and
private securities offerings and solicitations. In addition, in February, 1997
the Company registered shares of Common Stock underlying various warrants and
options of the Company, the exercise of all of which would result in gross
proceeds to the Company of approximately $4,635,535; however, no assurance can
be given that any of the aforementioned warrants or options will be exercised.
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.
The Company's research and development efforts are directed toward
developing new products, improving existing products and refining its
manufacturing processes. Such research and development costs amounted to
approximately $27,000 for the period ended March 31, 1997, compared to
approximately $26,000 for the period ended March 31, 1996. It is expected that
the Company will spend approximately $150,000 on research and development during
the 1997 year.
PART II
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 Underwriters' 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
10.1 Warrant Agreement dated , 1992 between Corporate Stock Transfer, Inc. and
the Company, incorporated by reference to exhibit number 10.9 in the
Registrant's Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended, File No. 33-53466
10.2 Form of Stock Option granted to employees, independent contractors and
consultants, incorporated by reference to exhibit number 10.14 in the
Registrant's Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended, File No. 33-53466
10.3 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
10.4 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
10.5 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
10.6 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 exhibit number 10.21 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
10.7 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
period ended September 30, 1995, under the Securities Exchange Act of 1934,
as amended
10.8 Omitted
10.9 Omitted
10.10Line of Credit Agreement (Asset Based), dated May 6, 1996, between 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 exhibit number 10.25 in the
Registrant's Quarterly Report on Form 10-QSB dated March 31, 1996, under
the Securities Exchange Act of 1934, as amended
10.11Financial Advisory and Investment Banking Agreement, dated April 2, 1996,
between PTI Holding Inc. and GKN Securities Corp., incorporated by
reference to the like numbered exhibit in Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, dated January 27,
1997, File No. 333-20607
10.12Amendment #2, dated June 6, 1996 to Warrant Agreement, incorporated by
reference to exhibit number 2 in 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
No Current Report on Form 8-K was filed by the Company during the
quarter ended March 31, 1997.
<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: May 15, 1997
PTI HOLDING INC.
By
Meredith W. Birrittella,
Chief Executive Officer (authorized signatory)
Chief Financial Officer
<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: May 15, 1997
PTI HOLDING INC.
By/s/ Meredith W. Birrittella
Meredith W. Birrittella,
Chief Executive Officer (authorized signatory)
Chief Financial Officer
<PAGE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
MARCH 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable, net of allowance for
returns and doubtful collections of $175,906 $ 4,355,226
Inventories 5,728,361
Deferred tax asset 191,100
Prepaid expenses and other current assets 1,196,382
-------------
Total current assets 11,471,069
Deferred tax asset 113,400
Equipment and improvements, net of accumulated
depreciation of $922,588 669,166
Goodwill, net of accumulated amortization of $136,462 1,333,134
Covenants not to compete, net of accumulated
amortization of $356,915 161,785
Patents, net of accumulated amortization of $1,032 6,507
-------------
$ 13,755,061
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 88,178
Loan payable, bank 2,820,253
Accounts payable and accrued expenses 1,816,351
Income taxes payable 596,426
Due to former key employee of acquired company 57,110
-------------
Total current liabilities 5,378,318
--------------
Commitments and contingent liabilities
Series A preferred stock, $.001 par value; issued and
outstanding 25,000 shares,redeemable at liquidation
value of $.10 per share (aggregating $2,500) 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
shares, issued and outstanding 3,515,436 shares 35,154
Capital in excess of par 6,453,457
Retained earnings 1,885,632
-------------
Total stockholders' equity 8,374,243
-------------
$ 13,755,061
=============
</TABLE>
<PAGE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<S> <C> <C>
1997 1996
------------------- -------------------
Net sales $ 6,229,506 $ 2,623,860
Cost of sales 3,937,393 1,811,559
------------------ -------------------
Gross profit 2,292,113 812,301
Selling, general and administrative
expenses 964,836 620,038
------------------ -------------------
Income from operations 1,327,277 192,291
Interest income, net of interest
(expense) (14,380) 7,028
------------------ -------------------
Income from operations before
income taxes (benefit) 1,312,897 199,263
Income taxes (benefit) 553,926 (43,984)
------------------ -------------------
Net income $ 758,971 $ 243,275
================== ===================
Net income per share of
common stock $ .19 $ .06
================== ===================
Weighted average shares
outstanding 4,152,239 4,112,646
================== ===================
</TABLE>
<PAGE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<S> <C> <C>
1997 1996
----------- ------------
Cash flows from operating activities:
Net income $ 758,971 $ 243,275
Adjustments to reconcile net income to net
cash (used in) operating activities:
Provision for returns and doubtful
collections - 4,252
Depreciation 90,807 62,634
Amortization of intangible assets 36,535 36,509
Deferred income tax benefit (80,500) (43,984)
(Increase) decrease in operating assets:
Accounts receivable (1,123,060) (1,324,509)
Inventories (1,964,812) (362,145)
Prepaid expenses and other
current assets (178,663) (83,596)
(Decrease) increase in operating liabilities:
Accounts payable and accrued expenses 1,069,943 1,204,382
Income taxes payable (415,574 -
------------ ------------
Net cash (used in) operating activities (1,806,353) (263,182)
------------ ------------
Cash flows from investing activities:
Purchase of equipment and improvements (289,660) (113,550)
Reduction in cash invested to secure letters
of credit - 208,750
------------ ------------
Net cash provided by (used in) investing
activities (289,660) 95,200
------------ ------------
Cash flows from financing activities:
Payments of amounts due to former key
employee of acquired company (23,472) (50,704)
Proceeds from bank loan, net 1,624,054 -
Loans from stockholders - 686,589
Proceeds from issuance of common stock 45,375 170,313
------------ ------------
Net cash provided by financing activities 1,645,957 806,198
------------ ------------
Net increase (decrease) in cash and cash
equivalents (450,056) 638,216
Cash and cash equivalents, beginning of period 361,878 969,329
------------ ------------
Cash and cash equivalents (overdraft),
end of period $ (88,178) $ 1,607,545
============ ============
Supplemental disclosures:
Interest paid $ 28,890 $ -
Income taxes paid 1,050,000 -
</TABLE>
<PAGE>
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, 1996 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 March 31, 1997 and the
results of their operations and their cash flows for the three months
ended March 31, 1997 and 1996. The results of operations for an interim
period are not necessarily indicative of the results to be attained in
any other fiscal period.
Earnings per share of common stock are computed using the weighted
average number of shares of common stock outstanding and common stock
equivalents (options and warrants). The amount of dilution reflected in
earnings per share data is computed by application of the treasury stock
method. 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.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options and
warrants will be excluded. The impact is expected to result in an
increase in primary earnings per share for the first quarter ended March
31, 1997 of $.03 per share, and $.01 for the first quarter ended March
31, 1996. The impact of Statement 128 on the calculation of fully
diluted earnings per share for these quarters is not expected to be
material.
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 called 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.
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.
<PAGE>
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 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 if 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 outstanding and exercisable as of March
31, 1997 and expire in January, 2006. The three preferred shareholders
are also major common stockholders of the Company. The remaining 14,480
common shares were issued to the other preferred stockholders in 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,531,132
<ALLOWANCES> 175,906
<INVENTORY> 5,728,361
<CURRENT-ASSETS> 11,471,069
<PP&E> 1,591,754
<DEPRECIATION> 922,588
<TOTAL-ASSETS> 13,755,061
<CURRENT-LIABILITIES> 5,378,318
<BONDS> 0
0
2,500
<COMMON> 35,154
<OTHER-SE> 8,339,089
<TOTAL-LIABILITY-AND-EQUITY> 13,755,061
<SALES> 6,229,506
<TOTAL-REVENUES> 6,229,506
<CGS> 3,937,393
<TOTAL-COSTS> 3,937,393
<OTHER-EXPENSES> 964,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,380
<INCOME-PRETAX> 1,312,897
<INCOME-TAX> 553,926
<INCOME-CONTINUING> 1,312,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 758,971
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
